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TP ICAP Group PLC (TCAP)

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Tuesday 07 September, 2021

TP ICAP Group PLC

Half-year Report

RNS Number : 9160K
TP ICAP Group PLC
07 September 2021
 

 

7 September 2021


TP ICAP Group plc

Financial and inte rim management report - for the six months ended 30 June 2021 (the 'Period')
 

TP ICAP Group plc (the 'Company') announces its group (the 'Group') results for the Period today. 

 

Nicolas Breteau, CEO of TP ICAP Group plc, said: 

 

"In the first half we made good progress executing our strategy to better position the Group to drive sustainable earnings growth. In Global Broking and Energy & Commodities, we achieved notable deliveries in our hub strategy. We are working at pace to integrate Liquidnet into our Agency Execution division and have identified approximately £20m of cost synergies. We have also developed and are implementing growth plans for both Equities and Credit. Parameta Solutions continues its growth trajectory, delivering a double-digit increase in revenues in its Data & Analytics business.

 

"Reflecting subdued secondary markets, and against a very strong comparative period, overall Group revenue of £936m was down on a constant currency basis 1%, and 7% excluding Liquidnet. Revenues excluding Liquidnet were broadly in line with the equivalent period of 2019, which saw more normal trading conditions compared to the exceptionally high volumes in Q1 2020.  Throughout the period, we exercised cost discipline and are on track to achieve £35m of annualised cost savings by the year end.

 

"Looking ahead, we will continue the systematic execution of our strategy so that we remain well placed to meet the needs of our clients and create value for our shareholders."

 

Financial highlights 

Reported:

 

H1 2021

H1 2020

 

Revenue

£936m

£990m

 

EBIT1

£57m

£101m

 

EBIT margin

6.1%

10.2%

 

Profit before tax

£28m

£78m

 

(Loss)/profit after tax

£(2m)

£45m

 

Profit for the period2

£1m

£54m

 

Basic EPS

0.1p

8.6p

 

Weighted average shares in issue

737.7

625.3

 

 

Adjusted (excluding significant items):

 

H1 2021

H1 2020

H1 2020

Constant Currency

Revenue

£936m

£990m

£947m

EBITDA

£155m

£186m

£174m

EBIT1

£117m

£159m

£147m

EBIT margin

12.5%

16.1%

15.5%

Profit before tax

£88m

£136m

£124m

Profit for the period2

£75m

£111m

£100m

Basic EPS

10.2 p

17.8p

 

Weighted average shares in issue

737.7

625.3

 

1.  EBIT = Earnings before interest and taxation

2.  Attributable to equity holders of the parent

 

A table reconciling Reported to Adjusted figures, detailing significant items, is included in the Financial Review.  Definitions of the Alternative Performance Measures used by the Group, including Constant Currency, are set out in the Glossary.  The weighted average number of shares used for the basic H1 2021 EPS calculation for the Period is 737.7m (H1 2020: 625.3m, after restatement for the bonus element of the 2021 rights issue).

 

Financial highlights

·  The Group's performance reflects the challenging trading conditions caused by the combination of quiet secondary markets and ongoing disruption caused by COVID-19.

·Revenue of £936m was 1% lower on a constant currency basis (down 5% on a reported basis).

·  Excluding Liquidnet's post-acquisition revenue of £55m (from the 23 March to 30 June period), the Group's revenue in the Period was 7% lower on a constant currency basis (11% lower on a reported basis).

·Reported and Adjusted EBIT margin was 4.1%pts and 3.6%pts lower primarily due to lower revenues, exacerbated by the negative impact of FX.

·Global Broking revenue declined 7% on a constant currency basis (11% on a reported basis), against a backdrop of market-wide lower volumes experienced across most asset classes. Equities revenues grew significantly, benefiting from a higher volumes in equity derivatives and the inclusion of the Louis Capital Markets ('LCM') acquisition that was completed on 31 July 2020.

·Energy & Commodities revenue decreased 9% on a constant currency basis (14% down on a reported basis) as client activity decreased significantly compared with the exceptionally strong prior period. We saw a notable improvement in activity in the second quarter.

·Agency Execution revenue increased 84% on a constant currency basis (81% on a reported basis), due to the acquisition of Liquidnet. Excluding Liquidnet, revenue declined 14% on a constant currency basis (16% on a reported basis) against a record comparative period in H1 2020 as improved FX, listed futures and options activity was offset by weaker rates Relative Value revenue.

·Parameta Solutions revenue grew 6% in the Period on a constant currency basis (1% down on a reported basis). The Data & Analytics business continued its double digit growth trajectory with an 11% revenue increase in constant currency (3% on a reported basis) as it continued to benefit from its strategy to launch new higher margin products, expand its distribution channels and diversify its client base. Post-Trade Solutions revenues declined 17% on a constant currency basis (23% on a reported basis) due to lower market wide volumes.

Strategic highlights

· Redomicile:  On 26 February the Group's domicile moved from the UK to Jersey. This is delivering tangible capital benefits which we anticipate will support our business investment opportunities globally.

· Liquidnet:  On 23 March 2021, the Group completed the acquisition of Liquidnet, a premier technology driven electronic buyside trading network that will transform our future growth prospects.

· Investment:  The Group continued to invest in and execute our electronification and aggregation strategy, while diversifying and growing our non-Global Broking businesses.  Key examples include:

· Global Broking:  new platforms launched in Rates, FX and Credit as part of Hub strategy

· E&C:  client roll out of Energy Hub underway

· Agency Execution:  acquisition of Liquidnet brings buyside connectivity, diversifies revenues and provides significant growth opportunities

· Parameta Solutions:  continued to launch new higher margin products; new distribution channels and diversify its client base in line with strategic aims

· ESG:  We have strengthened our governance and reporting; as well as launching new ESG related offerings in E&C and Parameta Solutions.

 

Dividend

A 4.0p per share interim dividend (H1 2020 interim dividend reported: 5.6p, 2020 pro-forma for February 2021 rights issue  using the current 780.6m shares in issue: 4.0p) will be paid on 5 November 2021 to shareholders on the register at close of business on 1 October 2021.

2021 full year guidance and outlook

· The Group notes that trading activity in July and August 2021 is broadly in-line with the prior year.

· Despite the subdued trading conditions we have experienced in the Period, together with continuing uncertainty caused by quiet markets and the disruption from COVID-19 , we anticipate full - year revenue for the Group , excluding Liquidnet, to be broadly in line with 2020 on a constant currency basis.

· The Group is expected to complete its targeted £35m annualised cost savings plan (announced in Q4 2020) by year end.  Around two-thirds of the savings are expected to be achieved in the front office.

· The Group reiterates its continuing commitment to its strategic investment spending as previously disclosed in our Capital Markets Day and Preliminary Results. 

· The Group notes that the appreciation of GBP against USD creates a headwind against our reported revenue and operating margin.  GBP has strengthened against USD by 8.5% (the average GBP:USD rate in H1 was 1.39 compared with the same period in 2020 average of 1.28).  Around 60% of Group revenues and 40% of costs are USD.  The Group is not engaged in any active currency hedging for reporting purposes.

· The FX impact and strategic investment spending mentioned above and in our Preliminary Results are expected to result in a lower full-year operating margin than the prior year.

 

Investor update

· The Group plans to host an Investor Seminar for Parameta Solutions on 12 October 2021.  Details to follow.

 

Interim presentation

· The Group will be holding a presentation along with Q&A via Webcast at 0900 BST on 7 September 2021.

· Please use the following details to attend the presentation:

 

Webcast Link:

https://streamstudio.world-television.com/854-1116-30033/en

 

Joining by telephone
United Kingdom (Local) 020 3936 2999

United Kingdom (Toll Free) 0800 640 6441

United States (Local) 1 646 664 1960

All other locations +44 20 3936 2999

 

Participant access code:  768213  

Participants will be greeted by an operator who will register their details.

 

Forward looking statements

This document contains forward looking statements with respect to the financial condition, results and business of the Company. By their nature, forward looking statements involve risk and uncertainty and there may be subsequent variations to estimates. The Company's actual future results may differ materially from the results expressed or implied in these forward looking statements.

 

 

Enquiries:


Analysts and investors
Al Alevizakos
Direct: +44 (0) 203 933 3040

Email: [email protected]
 

Media
William Baldwin-Charles
Direct: +44 (0) 207 200 7124

Email: [email protected]

 

Neil Bennett

Maitland

Direct: +44 ﴾0﴿20 7379 5151

Email: [email protected] 

 

About TP ICAP

· TP ICAP is a leading global markets infrastructure and data solutions provider. 

· The Group connects buyers and sellers in global financial, energy and commodities markets.

·We are the world's largest wholesale market intermediary, operating from 27 countries and with a portfolio of   businesses that provide broking services, trade execution, data & analytics and market intelligence.

· www.tpicap.com

 

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CEO review

Overview

Secondary markets in the first half of 2021 continued to be uncommonly quiet.  Government and central bank stimulus packages in response to COVID have flattened yields slowing activity in the secondary markets.  Additionally, the pandemic has forced many of our clients to work remotely with reduced risk limits.  With TP ICAP's revenues driven by transaction volumes, these factors have therefore had an adverse impact on our financial results for the six months. 

During the Period, we have retained our leading market share. Separately, we have seen electronic platforms gain more traction as traders continue to work from home. This further underlines the importance of our strategy to aggregate our liquidity, electronify our business and diversify our revenue streams.

Looking ahead, there is potential for increased activity as client portfolios are rebalanced in response to inflation.  In addition, as clients return to the office, market activity may pick up further.  We will maintain a rigorous focus on the factors within our control: executing our strategy, integrating Liquidnet into our Group, staying close to our clients, and managing our costs.

Financial performance

The Group's performance reflects the challenging trading conditions described above.  We delivered revenues of £936 million, down 1% on a constant currency basis (5% lower on a reported basis) against the comparative period, which included an outlying record first quarter.  Against the more normalised conditions of the first half of 2019, the Group's revenue excluding Liquidnet were up 6% on a constant currency basis and 2% on a reported basis. Excluding Liquidnet's revenue of £55m, revenue in the Period was 7% lower than the prior year on a constant currency basis (11% lower on a reported basis).

Adjusted operating costs increased 2% on a constant currency basis (or 2% lower on a reported basis). This increase largely reflected the Liquidnet acquisition. Total operating costs decreased 1% on a reported basis.

Excluding the Liquidnet acquisition, the Group's management and support costs increased by 1% on a constant currency basis (but were 2% lower on a reported basis).  

Adjusted EBIT for the half was £117m, 26% lower than the prior year on a reported basis primarily due to reduced revenues in Global Broking and Energy & Commodities.  Adjusted EBIT margin was at 12.5%, down from 16.1% in H2 2020, and we reported an adjusted profit before tax of £88m.

Reported EBIT was £ 57m, 44% lower than the prior year, with a reported EBIT margin of 6.1% (H1 2020: 10.2%).

Basic adjusted earnings per share ('EPS') were 10. 2p (H1 2020: 17.8p) and we will pay an interim dividend of 4.0p (H1 2020 reported: 5.6p, H1 2020 pro-forma for the bonus element of the February 2021 rights issue: 4.0p) per share for the half year.

Operating Segment performance

Revenue for the EMEA region was £456m, a 5% reduction in constant currency (7% in reported currency) against the comparative period. This performance reflected slower markets in Global Broking and Energy & Commodities against a very strong revenue performance in H1 2020. This was partially offset by continued strong performance in Parameta Solutions and good growth in Agency Execution.

The Americas reported revenue of £307m for the half, down 12% in constant currency (19% in reported currency).  Subdued markets saw reduced revenues in Global Broking, E&C and Agency Execution, with Parameta Solutions growing 6% in the Period.

In Asia Pacific, revenue was marginally down against the comparative period at £118m in reported currency (£121m in constant currency) which was a good performance given how hard the area has been affected by the pandemic. While Global Broking experienced reduced revenues, Energy & Commodities saw very strong growth in the Period as it opened new desks in both Tullett Prebon and ICAP.

Liquidnet revenues were £55m, from 23 March 2021 to 30 June 2021.

 

We split the business into distinct operationally managed segments which are the basis on which the allocation of resources is considered. This is different from the legacy TP ICAP regional grouping.  Liquidnet forms its own Cash Generating Unit ('CGU') for impairment testing purposes and as such it has been recognised as an individual segment.

Business divisions

In March of last year we announced the three key strategic pillars that would drive our medium-term growth: electronification and technology; aggregation of liquidity across our brands; and diversification of our revenues.

These three pillars remain critical for our future growth, and we have taken the decision to accelerate investment in the second half of the year in key projects to quicken the execution of our strategy.    

Brexit

With regard to Brexit, despite the ongoing complications caused by COVID, we are executing our plans, which include leveraging our EU network, as well as hiring locally in Continental Europe. We expect to have the required number of brokers based in the EU before the end of the year.  As a result, we continue to cover our EU clients effectively.

Global Broking

Global Broking is our largest division covering Rates, Credit, Equities, Foreign Exchange & Money Markets and Emerging Markets, where we have market leading positions. We bring together buyers and sellers providing a range of professional intermediary services that enable them to execute trades successfully. We operate through Tullett Prebon and ICAP brands separately. We also offer clients a range of ways to interact with us - through voice, hybrid or electronically - depending on the nature of the market, product and transaction. One of our fundamental strengths is the long-established relationships we have with top-tier banks, and our ability to provide price discovery through deep liquidity pools.

Market volumes were subdued throughout the first half of 2021 with revenues of £575m, down 7% in constant currency (down 11% in reported) against the very strong comparative period in 2020.   The impact of COVID-19, and primarily the work from home regimes amongst most of our clients, continues to have a negative effect on volumes as traders have had their limits reduced.

 

Our largest asset class, Rates, had a challenging six months, with revenues down 16% on a constant currency basis, (18% on a reported basis) albeit against a very strong comparative period in 2020. The low interest rate environment, and continuing quantitative easing, has continued to impact the Rates business. In addition, Brexit caused disruption to the operations of some wholesale swap market participants during the Period. We believe that the growing evidence of the re-emergence of inflation could drive increased activity in the second half.

 

Credit revenues were down 10% at constant currency (14% as reported) to £44m for the first half of the year. While Q1 trading volumes were broadly in line with a strong Q1 2020, market activity in the second quarter of 2021 was much weaker than the prior period. The lack of volumes and volatility impacted our FX & Money Markets with revenues down 9% to £86m in constant currency (12% on a reported basis) as in the absence of material yield curve steepening, wholesale and institutional risk appetite has remained low.

 

Equities experienced a strong six months with revenues up 18% in constant currency (11% on a reported basis) to £117m due to a combination of LCM's contribution, including a particularly good performance by MidCap Partners, and growth in Equity Derivatives. In Equity Derivatives, volatility-driven trading activity benefited from favourable market conditions in the first quarter and a recovery of equity financing activity in the second quarter, providing a partial offset to the effect of volatility subsiding to pre-pandemic levels.

Our key strategic priorities remain aggregating liquidity from our competing brands; improving connectivity with our clients and delivering improved workflows for all products.  Our Global Broking strategy is based around electronic hubs that create a seamless experience for our clients.  These hubs offer liquidity for clients across our brands, from a single point of entry through screens with a common look and feel together with robust post-trade processing. Clients will be able to transact in the way they want. While voice will remain a choice, it will do so alongside other execution protocols,  such as volume matching, request for quote, and targeted streaming. 

We have made good progress in the first six months of the year and this year will be accelerating our investment in the second half to deliver the hubs.  We have made excellent progress on improving the core infrastructure and matching engines upon which the hubs will sit.  It is now scalable, stable and functionally rich.  This is the critical ground work from which our client facing hubs will operate.

Progress in the first six months include:

· In Rates: we have continued to build out coverage and functionality of the Fusion Interest Rates Option platform, which is now live in EMEA, the US and Japan. We are progressively bringing the Tullett Prebon and ICAP brands on to the Sterling platform complementing our options offering.

· In Foreign Exchange , we launched a new automated Spot FX matching platform in June. The platform, which is an automated matching solution for the daily spot FX benchmark fixing, already has a significant number of large banks onboarded and using the platform.

· In Credit, we launched an EMEA Index Options platform for iTraxx indices and new execution protocols globally.

·   In Equities, we have completed the integration of Louis Capital and introduced request for quote ('RFQ') protocols.

We continue to seek to target white spaces to fill and in the first half of the year Group launched its Fusion Islamic Finance platform to facilitate Commodity transactions and to provide liquidity to the Islamic financial marketplace.

Energy & Commodities

Energy & Commodities is our second largest division and operates through the Tullett Prebon, ICAP and PVM brands in all the key commodities markets including oil, gas, power, renewables, ferrous metals, base metals, precious metals and soft commodities.  Clients include regional banks, corporates, suppliers, hedge funds and trading companies.

The first half of 2020 was an exceptionally strong Period for our Energy & Commodities business.  Similarly to the Global Broking business, Energy & Commodities saw strong activity in the first quarter of 2020, but experienced a weaker second quarter. Markets in the first quarter of 2021 were significantly quieter, although we did see some pick-up in activity in the second quarter. Much like Global Broking, the majority of our clients continued to work from home, which negatively impacts the amount of activity in the market.  Consequently, revenue of £187m was down 9% at constant currency (14% as reported) against the comparative period.

Our largest business, Oil, saw reasonable volatility in the Period, but this did not translate into volumes being traded and therefore revenues declined 9% in constant exchange rates. The majority of the other products brokered experienced some revenue decline, although we experienced good performance in environmental and some soft commodities products.  

The transition to a less carbon intensive world continues and we remain well positioned to capture the benefits of this transformation. Our revenues from positive, transitional or neutral products stayed steady in the half at approximately 40% of E&C's total.

Our strategic goal for Energy & Commodities is to consolidate our global market leading position. To this end, we have continued to invest in electronifying our business and offering our clients aggregated liquidity across our three market-leading brands. The key to this is our Energy hub, which we believe will further entrench our position as the world's leading oil broker.  The hub will pool liquidity cross brands, desks and regions, provide an Order Management System, simplify broker trade capture, provide STP and feed data directly through to Parameta Solutions.

We are rolling out the electronic matching engine to our desks and have a client pilot underway in Norway in the Guarantees of Origin segment (Guarantees of Origin are trading certificates generated by EU or EEA companies that produce electricity from renewable sources). We will continue to roll out the hub in the second half.

In the Period we announced that we would launch the first wholesale trading venue for cryptoassets in the second half of the year. The platform will feature an electronic marketplace for spot cryptoasset trading, including Bitcoin and Ethereum, as well as providing connectivity and post-trade infrastructure into a network of digital assets custodians.  Fidelity Digital AssetsSM  and Zodia Custody (a venture incubated by SC Ventures, the innovation arm of Standard Chartered) will be our initial custodians and Flow Traders our initial liquidity partner.

We are cautiously optimistic regarding the prospects for the sector as globally, public infrastructure has seen under-investment during the COVID-19 pandemic and we anticipate that this will pick up as the world reopens, potentially resulting in the start of a new commodities super cycle.

Agency Execution

Agency Execution provides trade ideas and agency execution to buy side clients including hedge funds, asset managers and non-bank liquidity providers. The role of an agency brokerage is to offer the buy side access to the best price in the market from a wide range of different banks, whilst guaranteeing client anonymity and neutrality. Agency Execution is an important part of the Group's diversification strategy, bringing in a new revenue stream from a different client base.

In the first half of the year Agency Execution saw revenues increase by 84% on a constant currency basis (81% on a reported basis) due to the acquisition of Liquidnet. Revenues excluding Liquidnet declined 14% in constant currency (16% as reported) against a record comparative as improved performances in FX, listed future and options activity was offset by a weaker performance by the rates Relative Value desk following a record H1 2020.

Liquidnet revenue for the Period in which it was consolidated (23 March to 30 June) was £55m. During Q2 US share trading volumes declined by 15% relative to the prior year. In Europe, the high conviction and high volatility first quarter produced robust block activity, where as in the second quarter, lower volatility and weak conviction conditions resulted in a lower share for blocks within overall trading activity.

We have owned Liquidnet since 23 March 2021 and since that time have undertaken a full qualitative assessment of the business and developed growth plans for both Equities and Credit.

The Equities business is a trusted partner for both clients and market participants with top tier technology. It has more than 1,000 clients globally and access across 45 markets and to third party dark and lit venues.

Clients are able to transact using several different channels and we plan to leverage Liquidnet's advantageous position  in block trading to increase the use of the other channels to diversify revenues. This will have the additional benefit of increasing liquidity in the dark pool. We plan to do this in four ways. First, we will extend Liquidnet's distribution by leveraging TP ICAP's network of offices across 27 countries. Second, we will build out its suite of algorithms to help clients move more easily between execution protocols to access dark and lit markets. Third, we intend to grow Liquidnet's existing programme trading offering, and lastly, we see the potential to increase our share of the cross-border trading market.

The Credit platform has about 500 active buyside clients, including most of the top 50 bond holders globally. We intend to grow its revenue by leveraging the complementary capabilities of Liquidnet and TP ICAP, through targeted investments in technology and talent and by developing new offerings.

We launched the first of these today - Liquidnet Primary Markets. Liquidnet Primary Markets is a result of close collaboration between Liquidnet, our Members and leading banks. It helps to address the challenges caused by the current debt issuance workflow which is fragmented and manual, and can lead to errors. Our Debt Capital Markets (DCM) workflow solution allows banks to efficiently send new issue information and deal updates to investors electronically via the Liquidnet application and their order management systems. Liquidnet Members can also trade new issues electronically from both Liquidnet's Fixed Income application and their order management systems, and benefit from enhanced liquidity discovery and price formation in early trading which is currently lacking.

For secondary markets, around 80% of corporate bond dealing is Dealer to Client and dominated by three competitor platforms. Putting Liquidnet and TP ICAP together means that we have the necessary buyside connectivity and dealer relationships to compete. We are currently consulting with members and dealers to shape two new offerings that we are developing, namely a Dealer-to-Client Request for Quote workflow and price streaming services.

Parameta Solutions

Parameta Solutions, which rebranded from Data & Analytics and Post Trade Solutions in April, provides unbiased data products that facilitate trading, enhance transparency, reduce risk, provide balance sheet optimisation and improve operational efficiency.  It is the leading provider of OTC pricing data and has access to more OTC data than any other IDB globally.  We have pricing, reference data and analytical tools for major asset classes and markets.

It is a high margin business with revenues that are largely subscription-based and sticky, with a retention rate in excess of 98%, so it provides us with excellent earnings diversification and sustainable growth opportunities.

The core Data & Analytics business continued its double-digit growth (11% on constant currency basis, and up 3% on reported basis) as it continued to benefit from its strategy to launch new and higher value products, expand distribution channels and deepen and diversify its client relationships.  

Post-Trade Solutions revenue declined 17% on a constant currency basis (-23% on a reported basis) relative to the exceptional performance in the same period and broadly flat against the same period in 2019.  The reduction in revenue was primarily due to the Matchbook resetting service which was affected by lower market wide volatility and near zero rates reducing the need for clients to reduce secondary risk.

Parameta Solutions revenue grew 6% on a constant currency basis (broadly in line on a reported basis).

Our strategy for Parameta Solutions has three elements: develop new higher value products, grow the client base with a focus on the buyside and corporates, and expand its channel partners and distribution capabilities.

With regard to new products, we have expanded our evaluated pricing suite to include FX evaluated pricing and launched an environmental package, in support of our clients' decarbonisation strategy.  These are high margin, high value products that have been driven by client demand to meet stricter regulatory disclosure and risk management. 

We are growing the client base by aligning our sales team to specific client segments: buy-side; sell-side and corporates. This is already proving a success with 30 new buyside clients added in the Period.

For distribution, we have expanded our Global Sales team to access underpenetrated markets. We have partnered with leading cloud providers to create off-premise solutions for clients. This will allow users to access data on a share basis via the public cloud, with greater speed and agility and in a more cost efficient way.

In Post-Trade Solutions, despite a challenging first half, the compression service, ClearCompress added ten large dealers to its client list and launched two new services due to client demand. We have built a working group of 27 dealers helping us shape new products and opportunities.

Near term outlook

Trading activity in July and August 2021 is broadly in-line with the prior year. Despite the subdued trading conditions we have experienced in the Period, together with continuing uncertainty caused by quiet markets and the disruption from COVID-19, we anticipate full-year revenue for the Group, excluding Liquidnet, to be broadly in line with 2020 on a constant currency basis.

Our focus for the second half of the year will be on three areas. We will continue to invest in and execute our strategy, we will stay close to our clients, ensuring that we continue to provide them with relevant solutions, and we will continue to manage our cost base.

Concluding comments

While trading conditions have continued to be challenging during the first half of 2021, we have made progress on executing our growth strategy which will transform our company to deliver sustainable earnings term growth over the medium term.

I would like to thank all of my colleagues at TP ICAP for their continued hard work and dedication in the first half of the year.

Nicolas Breteau

Chief Executive Officer

7 September 2021

 

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Financial review

 

Introduction

 

During H1 2021, we experienced subdued wholesale trading activity across most financial asset classes particularly in the second quarter of 2021, compared with both the first quarter of 2021, and the second quarter of 2020.

 

This was caused by a number of factors, including:

§ The resurgence of COVID-19 that continued to impact our clients, with traders working from home and effectively having to limit their risk appetites;

§ The disruption due to Brexit, which was especially notable at the EMEA region during the first few months of the year, as market participants sought to ensure full trading compliance with the prevalent rules in an ever-changing environment; and

§ General government actions designed to support the wider economy, through low interest rates and large quantitative easing programmes.

 

This muted and challenging environment heavily impacted our broking business in H1 2021, with revenue declining 1% on a constant currency (or 5% on a reported basis). These numbers include the revenue contribution of the newly acquired Liquidnet business, which is consolidated in our Group numbers from 23 March 2021. Excluding Liquidnet, our group revenues declined 7% on a constant currency basis (or 11% on a reported basis). 

 

As announced at our Capital Markets Day ('CMD'), we have embarked on a multi-year journey to diversify our business, through meaningful investment. This objective will be accelerated by the Liquidnet acquisition. In the interim, Global Broking still provides around 60% of Group revenue, and as such weak wholesale trading conditions has adversely impacted our short-term performance.

 

Our H1 2021 adjusted operating costs increased 2% on a constant currency basis (declined 2% on a reported basis). Excluding the costs acquired with Liquidnet and LCM, front office costs were lower year on year mainly due to the fall in revenue.  Broker compensation was marginally higher in the Period and included some benefit of the £35m cost savings plan that was realised in the Period.  After the addition of Liquidnet and LCM, front office costs were 1% lower overall. Management and support costs were 12% higher, despite an £18m year-on-year reduction primarily driven by reductions in bonus accrual, holiday pay accrual, Covid-19 related IT investment and savings realised from the £35m cost savings plan.  This was mainly due to the addition of £32m of support costs acquired with Liquidnet and LCM, the £14m adverse FX movement and the retranslation of financial assets. The significant items increased 3% at a pre-tax level to £60m, and this reflected previously identified costs regarding our redomiciliation to Jersey and the acquisition of Liquidnet.

 

Two factors have impacted profitability negatively; the lower revenue base but also our currency mismatch. As a reminder, the Group has c.60% of Group revenues and 40% of costs in USD. In H1 2021, GBP appreciated c.8% versus USD. This puts additional pressure on our EBIT and EBIT margin. The Group is not engaged in any active currency hedging for reporting purposes, as this is not considered beneficial for our shareholders through the cycle. With that in mind, reported and adjusted EBIT margin declined to 6.1% and 12.5% from 10.2% and 16.1% in the prior year respectively.

 

Overall our results reflect market conditions in the period.  Despite this challenging environment   we remain committed to investing in our strategic initiatives that will helps us achieve our medium term growth and margin improvement ambitions.

 

Robin Stewart, CFO

 

 

Financial and performance metrics

 

Our key financial and performance indicators for H1 2021 are summarised in the table below together with comparatives from the equivalent period in H1 2020.

 

 

H1 2021

H1 2020

H1 2021 vs. 2020

 

Group (exc. Liquidnet)

Liquidnet

Total

Reported

Constant

Currency

 

Reported

Change

 

£m

£m

£m

£m

£m

£m

Revenue

881

55

936

990

947

-5%

Adjusted

 

 

 

 

 

 

- Contribution

333

26

359

375

357

-4%

- Contribution margin

37.8%

47.3%

38.4%

37.9%

37.7%

+0.5%pts

- EBITDA

148

7

155

186

174

-17%

- EBIT

119

(2)

117

159

147

-26%

- EBIT margin

13.5%

(3.6%)

12.5%

16.1%

15.5%

-3.6%pts

Reported

 

 

 

 

 

 

- EBIT

 

 

57

101

 

-44%

- EBIT margin

 

 

6.1%

10.2%

 

-4.1%pts

Average:

 

 

 

 

 

 

- Broker headcount1

2,760

 

2,760

2,746

 

+1%

- Revenue per broker2 (£'000)

289

 

289

330

 

-12%

- Contribution per broker3 (£'000)

106

 

106

124

 

-15%

Period end:

 

 

 

 

 

 

- Broker headcount1

2,774

 

2,774

2,728

 

+2%

- Total  headcount

4,932

470

5,402

4,898

 

+10%

 

1. Average broker headcount excludes Liquidnet. Average broker headcount for H1 2020 has been restated to move 24 headcount as a result of the transfer of the Post-Trade Solutions business to Parameta Solutions during the first half of 2021. Period end 2020 broker headcount has been restated to move 26 Post-Trade Solutions  headcount to Parameta Solutions .

2.  Revenue per broker is defined as total broking revenues (Global Broking, Energy & Commodities and Agency Execution, excluding Liquidnet) excluding inter-division revenues divided by average broker headcount. H1 2020 has been restated following the transfer of the Post-Trade Solutions business to Parameta Solutions during 2021.

3.  Contribution per broker represents broking contribution (as defined in the Contribution section) for Global Broking, Energy & Commodities and Agency Execution, excluding Liquidnet business, divided by average broker headcount with the prior year comparative calculated on the same basis. H1 2020 has been restated following the transfer of the Post-Trade Solutions  business to Parameta Solutions during 2021.

 

Average broker headcount was 1% higher at 2,760 in H1 2021 from 2,746 in H1 2020 following the acquisition of Louis Capital Markets ('LCM'). Despite the 1% increase in the average number of brokers the revenue per broker declined 12% compared with 2020 on a reported basis (8% lower on a constant currency basis). The Period-end sales & support headcount increased 10%, primarily reflecting the acquisition of Liquidnet.

 

The tables that follow analyse revenue by business division as well as revenue and Adjusted operating profit ('EBIT') by primary operating segment for 2021 compared with the equivalent period in 2020. The tables also show the change on a constant currency basis.

 

Income Statement

 

The Group presents its reported results in accordance with IFRS as detailed in the financial statements. The Group also presents adjusted non-IFRS measures to report performance. Adjusted results and other alternative performance measures ('APMs') may be considered in addition to, but not as a substitute for, the reported results presented in accordance with IFRS. The Group believes that adjusted results and other APMs, when considered together with reported results, provide shareholders, analysts and other stakeholders with additional information to better understand the Group's financial performance and compare financial performance from period to period. These adjusted measures and other APMs are also used by management for planning and to measure the Group's performance. Management also uses adjusted measures to allow better comparability of information between operating segments. Investors and analysts should not rely on any single financial measure but should review the Interim Financial Statements, including the financial statements and notes, in their entirety.

 

Reported results are adjusted for significant items to derive adjusted results. A reconciliation from reported to adjusted measures is provided in the table below. The Group's adjusted performance is derived by adjusting reported results for Significant items. For H1 2021, the Group's adjusted and reported Earnings before interest and tax ('EBIT') of £117m and £57m, versus £159m and £101m in the same period of the prior year. Adjusted and reported EBIT decreased by 26% and 44% as the reported revenue reduction, together with the adverse FX impact, were not offset by equivalent declines in the management and supports costs, which is primarily incurred in GBP.

 

Income Statement

H1 2021

£m

Adjusted

Significant

items

Reported

Revenue

936

-

936

Employment, compensation and benefits

(591)

(9)

(600)

General and administrative expenses

(194)

(28)

(222)

Depreciation and impairment of PPE and ROUA

(24)

(2)

(26)

Amortisation and impairment of intangible assets

(14)

(21)

(35)

Impairment of other assets

-

-

-

Operating expenses

(823)

(60)

(883)

Other operating income

4

-

4

EBIT

117

(60)

57

Net finance expense

(29)

-

(29)

Profit before tax

88

(60)

28

Tax

(21)

(9)

(30)

Share of net profit of associates and joint ventures

9

(5)

4

Non-controlling interests

(1)

-

(1)

Earnings

75

(74)

1

Average number of shares

737.7

737.7

737.7

Basic EPS

10.2p

(10.1p)

0.1p

 

H1 2020

£m

Adjusted

Significant

items

Reported

Revenue

990

 

990

Employment, compensation and benefits

(637)

(2)

(639)

General and administrative expenses

(173)

(15)

(188)

Depreciation and impairment of PPE and ROUA

(18)

-

(18)

Amortisation and impairment of intangible assets

(9)

(20)

(29)

Impairment of other assets

-

(21)

(21)

Operating expenses

(837)

(58)

(895)

Other operating income

6

-

6

EBIT

159

(58)

101

Net finance expense

(23)

-

(23)

Profit before tax

136

(58)

78

Tax

(34)

1

(33)

Share of net profit of associates and joint ventures

10

-

10

Non-controlling interests

(1)

-

(1)

Earnings

111

(57)

54

Average number of shares

625.3

625.3

625.3

Basic EPS1

17.8p

(9.2p)

8.6p

1.  The average number of shares, used to calculate Basic EPS, has been restated to integrate the bonus element of the rights issued completed in February 2021  

Revenue

Total Revenue in the Period of 936m was 1% lower than the equivalent period last year on a constant currency basis and 5% lower on a reported basis. The prior year's comparative period reflected extraordinary volumes in March 2020, caused by volatile market conditions as result of the emergence of the COVID-19 pandemic. Wholesale trading activity in the current Period was notably subdued across most financial asset classes and particularly in the second quarter of 2021 compared with the prior year.

 

Excluding Liquidnet's revenue contribution of £55m, revenue in the Period was 7% lower for the equivalent period last year on a constant currency basis and 11% lower on a reported basis. Revenue in H1 2021 was 6% higher on a constant currency basis than the equivalent period for 2019 when volumes were more normalised.

 

The broking inter-division revenues and Data & Analytics interdivision costs are eliminated upon the consolidation of the Group financial results.

 

Revenue by Primary Operating Segment and Business Division

£m

 

 

H1 2021

H1 2020

Reported

Change

Constant Currency Change

 

£m

£m

 

 

By Primary Operating Segment

 

 

 

 

EMEA

456

488

-7%

-5%

Americas

307

377

-19%

-12%

Asia Pacific

118

125

-6%

-2%

Liquidnet

55

-

n/a

n/a

Total Revenue

936

990

-5%

-1%

 

 

 

 

 

By Business Division

 

 

 

 

Rates1

226

277

-18%

-16%

Credit

44

51

-14%

-10%

FX & Money Markets

86

98

-12%

-9%

Emerging Markets

92

103

-11%

-6%

Equities

117

105

+11%

+18%

Inter-division revenues2

10

10

+0%

+0%

Total Global Broking

575

644

-11%

-7%

Energy & Commodities

186

216

-14%

-9%

Inter-division revenues2

1

1

+0%

+0%

Total Energy & Commodities

187

217

-14%

-9%

Excluding Liquidnet

48

57

-16%

-14%

Liquidnet3

55

-

n/a

n/a

Total Agency Execution 3

103

57

+81%

+84%

Data & Analytics1

72

70

+3%

+11%

Post Trade Solutions

10

13

-23%

-17%

Total Parameta Solutions 1

82

83

-1%

+6%

Inter-division eliminations2

(11)

(11)

+0%

+0%

Total Revenue

936

990

-5%

-1%

 

 

 

 

 

 

1.  For comparative purposes, in H1 2020, £12m revenue on a constant currency basis (£13m on a reported basis) have been reclassified from Global Broking' Rates business into Parameta Solutions as a result of the transfer of our Post- Trade Solutions business.  Also, in H1 2020, an additional £1m  Inter-division revenue in Global Broking has been recognised relating to SEF(Swap Execution Facility) revenue earned from  clearing the Post- Trade Solutions revenues, with a corresponding increase in the revenue elimination upon consolidation.

2.  Inter-division charges have been made by Global Broking and Energy & Commodities to reflect the value of proprietary data provided to the Parameta Solutions division. The prior year period has been restated in line with the new-presentation format. The Global Broking inter-division revenues and Parameta Solutions inter-division costs are eliminated upon the consolidation of the Group's financial results.

3.  In H1 2021, £55m of revenue have been included within Agency Execution division arising from the Liquidnet acquisition that completed on 23 March 2021.

Primary Operating Segments revenue

EMEA

EMEA revenue decreased by 7% in H1 2021 compared with the equivalent period in the prior year on a reported basis (5% lower on a constant currency basis). This reflected tough H1 2020 comparatives in Global Broking and Energy & Commodities.

 

In Global Broking, Rates, FX & Money Markets and Credit saw double-digit declines. Equities revenues were up due to strong performance in structured products, but primarily due to the addition of the acquisition of Louis Capital Markets (LCM). Agency Execution (excluding Liquidnet) continued to grow strongly due to the core strength in listed derivatives in the COEX brand. Similarly, Parameta Solutions continued to grow at double-digit, in spite of some weakness in Post-Trade Solutions revenue.

Americas

Americas revenue decreased by 19% in H1 2021 compared with the same period in the prior year on a reported basis (12% lower on a constant currency basis). This was again due to the extraordinary prior year comparatives to the prior year in Global Broking and Energy & Commodities.

Global Broking has seen lower volatility and trading volumes. Rates were materially down year-on-year when compared with strong March and April 2020 trading activity. Credit was also weaker than in the prior year, even though the electronic corporate bonds desk has had record Period. Equities revenue declined versus very strong comparative trading volumes.  

In Energy & Commodities, power revenues were down year-on-year with declining volumes relative to the prior year.

Agency Execution revenue declined materially due to lower revenues in the non-COEX business, relating to interest rates relative value.

Parameta Solutions continued its organic growth, adding new salespeople, products and clients.

Asia Pacific

Asia Pacific revenue decreased by 6% in H1 2021 compared with the same period in the prior year on a reported basis (2% lower on a constant currency basis). The Global Broking business suffered an overall year on year revenue decrease of 10% on a reported basis (7% lower on a constant currency basis), owing in large part to resurgence of COVID-19 in the region, resulting in a slowdown of market activities as many customers turned to work from home and hence exercise a reduced trading appetite. The Energy and Commodities business in the region developed well in both scale and the level of diversification, with growth in most products following white space filling and strengthening of existing areas, especially in Oil. Overall revenue grew by 25% on a reported basis (32% higher on a constant currency basis).  The business operates in 3 brands:  Tullett Prebon, which has traditionally been strong in oil and related products together with precious metals, PVM, which is focused on oil and related products, and ICAP which has traditionally been strong in Iron Ore in Singapore and in Australian electricity.

Liquidnet

The Liquidnet acquisition was completed on the 23 March 2021. Following a robust pre-acquisition Q1 (driven by particularly strong retail activity), US share trading volumes declined by c.15% in Q2 relative to the prior year. Over the past year, US agency alternative trading systems ('ATS') block venues, like Liquidnet, have lost some market share to certain retail trading-driven ATS business models. In Europe, the high conviction/high volatility trading environment of Q1 21 manifested in robust block activity (below Q1 20, but well above historical averages). In contrast, the lower volatility, weak conviction conditions characterising the second quarter resulted in a reduced block component within overall trading activity.

Business Division revenue

Global Broking

Revenue of £575m was 11% lower than in H1 2020 on a reported basis (7% lower on a constant currency basis). Wholesale trading activity was notably subdued across most financial asset classes in the Period and particularly in the second quarter of 2021, compared with the prior period.

 

All asset classes saw lower revenues year-on-year, apart from Equities due to the inclusion of the LCM acquisition. The declines were more pronounced in Rates and Credit.

 

Rates activity was weaker, partly due to strong comparatives in Q1 2020, but also due to renewed global government support, including maintaining low interest rates and continued quantitative easing. In addition, disruption caused from Brexit and Libor transition impacted negatively the activity in the Period. Overall, Rates revenue declined 18% on a reported currency basis (16% on a constant currency basis). In credit markets, the conditions continue to be challenging as a number of new competitors continue to gain market share and the strong issuance growth in Q1 2021 did not lead to high secondary trading. This led Credit revenue to decline 14% on a reported basis (10% lower on a constant currency basis). FX & Money Markets and Emerging Markets both saw revenue declines of 9% and 6% on a constant currency basis on lower volatility.

 

Finally, Equities revenues increased 11% on a reported basis (18% higher on a constant currency basis). Market was favourable for structured products, and the group also benefited from the diversification from the LCM acquisition.

Energy & Commodities

Revenue of £187m were 14% lower than in H1 2020 on a reported basis (9% lower on a constant currency basis). This is mainly due to tough comparatives in H1 2020, where volumes reached extraordinary levels. Most E&C products including Power, Gas, Oil, Metals, Alternative Fuels and Soft & Agriculturals saw some revenue decline, albeit we witnessed good increases in Environmental and Minerals.  In the oil markets volumes were down significantly but we fared better than the exchanges for H1 2021, as the exchanges previously picked up a significant amount of non-traditional oil business which has now left the market. The gas market is growing significantly but the exchanges and a number of new entrants picking up a significant amount of this new business, usually offering lower market prices. Asia has benefitted from a move of liquidity as the lockdowns have had a smaller impact on Singapore and Australia, and as such revenues were higher compared with the same period in the prior year. In the US the gas and power volumes are down and there has been a flight to quality which has benefitted our strong desks. Our H1 2021 revenue are c4% up on our pre-pandemic 2019 revenues on a constant currency basis.

Agency Execution

Revenue of £103m increased 81% on a reported basis (84% higher on a constant currency basis). The large increase (£55m) reflects the post-acquisition revenue of the Liquidnet business, which was completed on 23 March 2021. Excluding the Liquidnet revenue, Agency Execution revenue was £48m, a 16% decrease on a reported basis (14% lower on a constant currency basis). Overall, the COEX brand continued to grow especially for FX, reflation trades and listed futures and options products. However, this was offset by weaker relative value (RV) performance against extraordinary volumes in the prior year.

Liquidnet acquisition was completed on the 23 March 2021, and contributed £55m in H1 2021, primarily through its cash equities platform.

 

Overall, cash equities (the main product of Liquidnet in its current form) were generally robust in Q1 2021, albeit US share trading volumes declined by c.15% in Q2 21, compared with the prior year, although retail trading activity has remained materially higher as a share of trading than pre-pandemic levels. Over the course of the past year, US agency ATS have lost some market share to certain retail trading-driven ATS business models. In Europe, the high conviction/high volatility trading environment of Q1 21 manifested in robust block activity (below Q1 20, but well above historical averages). In contrast, the lower volatility, weak conviction conditions characterising the second quarter resulted in a reduced block component within overall trading activity.

Parameta Solutions

Revenue of £82m was 1% lower than in H1 2020 on a reported basis (6% higher on a constant currency basis). During the Period, we launched our new brand Parameta Solutions. Also, we transferred our Post-Trade Solutions (previously Global Broking's RMS) business to Parameta Solutions.

Data and Analytics (D&A) revenue continued to grow strongly (3% higher on a reported basis, 11% higher on a constant currency basis) with a lot of highlights. Most notably, there was a dramatic reduction in the cancellation rates vs. H1 2020. We were able to complete our first benchmark and index license, our first tri-party benchmark deal and signed a multi-year enterprise license with at tier-1 dealer. In addition, we were able to grow materially our client list after completing a Data License campaign with one of our top distributors. In terms of new products, we launched a new real time oil service, multiple RFR product and our inaugural Environmental package.

 

Post-Trade services revenue declined 23% on a reported basis (17% lower on a constant currency basis) on the back of lower secondary volumes. In terms of performance, the highlights for Post-Trade services were: (a) increasing revenues in eRepo platform, (b) growing revenues from our nascent MB Rebalance, (c) the transition of ClearCompress to a recognised compression solution provider and (d) continuous improvements in the Matchbook Rates and NDF platform.

 

Operating expenses

 

Total operating costs were £883m, which was 1% lower than in H1 2020 on a reported basis. Total adjusted operating costs of £823m in H1 2021 were 2% lower than H1 2020 (7% higher on a constant currency basis (see APM section for further details)). This has been driven by a decrease in front office and management and support costs.

£m

H1 2021

H1 20201

Change

Reported

Change

Constant

Currency

Change

Front office costs

 

 

 

 

 

-  Broking2

546

583

(37)

-7%

-2%

-  Parameta Solutions

31

32

(1)

-3%

+3%

Total front office costs

577

615

(38)

-6%

-2%

Management and support costs

 

 

 

 

 

-  Employment costs

123

127

(4)

-3%

+2%

-  Technology and related costs

38

38

-

+0%

+0%

-  Premises and related costs

15

12

3

+25%

+25%

-  Depreciation and amortisation

38

27

11

+41%

+41%

-  FX losses/(gains)

4

(10)

14

+140%

+140%

-  Other administrative costs

28

28

-

+0%

0%

Total management and support costs

246

222

24

+11%

+14%

Total adjusted operating costs

823

837

(14)

-2%

+2%

Significant items

 

 

 

 

 

-  Restructuring and other related costs

12

13

(1)

-8%

 

-   Disposals and acquisitions and investments in new businesses

37

22

15

+68%

 

-  Goodwill impairment

-

21

(21)

-100%

 

-  Legal and regulatory matters

11

2

9

+450%

 

Total operating expenses

883

895

(12)

-1%

 

 

1.  Restated in line with our new divisional disclosures.

2.  Includes all front-office costs, including broker compensation, travel & entertainment, telecommunications, information services, clearing and settlement fees as well as other direct costs.

 

The table above sets out operating expenses on the basis on which management chooses to view this area, divided principally between front office costs and management and support costs. Front office costs tend to have a large variable component to them and are directly linked to the output of our brokers. The largest element of this is broker compensation as well as other front office costs, which include travel and entertainment, telecommunications and information services, clearing and settlement fees as well as other direct costs. The remaining cost base represents the management and support costs of the Group.

 

Broking front-office costs decreased £37m, or 7% on a reported basis (-4% on a constant currency basis). The underlying increase in management and support costs (excluding the FX impact) is mainly attributed to recent acquisitions, mainly Liquidnet (+£28m) and Louis Capital Markets (LCM), partially offset by lower compensation costs due to the revenue declines, savings relating to the announced £35m cost savings plan and lower clearing & settlement costs.  

 

Parameta solutions front-office costs decreased 3% on a reported (+3% on a constant currency basis), due to the continuous revenue growth for the Data & Analytics business.

 

Employment costs decreased 3% on a reported basis (2% higher on a constant currency basis). This is mainly due to recent acquisition of Liquidnet and LCM, partially offset by some savings relating to the announced £35m cost savings plan.

 

Technology and related costs were broadly stable at £38m, with additional Liquidnet technology costs (+£6m), largely offset by lower IT consultancy fees (-£6m), mainly due to the non-recurrence of COVID-19 cloud investment.

 

Premises and related costs increased +25% on a reported and constant currency basis. This relates to the Liquidnet acquisition.

 

Depreciation and amortisation increased by £11m or +41% on a reported basis (+46% on a constant currency basis).  The majority of the increase relates to Liquidnet (£9m) with the rest attributed to depreciation (£2m) of our new London headquarters.

 

The £14m adverse change in FX gains and losses reflects the strengthening of GBP against other currencies on the retranslation of net financial assets, including cash.

 

Other administrative costs were stable on a reported basis (3% lower on a constant currency basis), due to lower travel & entertainment and other consultancy fees.

Significant items

Significant items are material items, that may span several accounting periods, that are excluded from adjusted measures to allow better comparability of financial performance from period to period and give additional information to better understand the Group's financial performance when considered together with reported results.

 

Total significant items, included in operating costs, amounted to £60m in H1 2021 (H1 2020: £58m) and £5m (H1 2020: £nil) as a loss on sale of associate which is reported separately on the income statement. Significant items include:

Restructuring and related costs of £12m (H1 2020: £13m)

Restructuring and related costs arise from initiatives to reduce the ongoing cost base and improve efficiency in the business to enable the delivery of our strategic priorities. These initiatives are material in size and nature to warrant exclusion from adjusted measures. These initiatives may span several accounting periods. Costs for other smaller scale restructuring are retained within both reported and adjusted results. In H1 2021, the following restructuring and related costs were considered to be significant items:

§ £3m incurred on the Group's redomiciliation to Jersey, which was approved by Shareholders

at the EGM in January. These costs are reflected within other general and administration expenses (made up of £2m legal fees and £1m accountancy fees);

§ £4m in property related costs from the Group's leased property integration and includes: (a) property costs associated with Tower 42 and 155 Broadgate of £2m following the transfer and consolidation of the Group's space requirements to 135 Broadgate and (b) £2m in accelerated depreciation charges related to the now empty properties.

§ £4m in employee redundancy costs associated with the Group's £35m costs saving programme and;

§ £1m pension scheme and past service cost from a remeasurement of the Group's UK defined benefit scheme;

As adjusted results include the benefits of material restructuring programmes but some of the related costs have been excluded, they should not be regarded as a complete picture of the Group's financial performance, which is presented in the reported results.

Disposals, acquisitions and investments in new businesses of £42m (H1 2020: £22m)

Costs, and any related income, related to disposals, acquisitions and investments are transaction dependent and can vary significantly year on year, depending on the size and complexity of each transaction. These amounts, including the amortisation of intangible assets arising on consolidation, are excluded in deriving adjusted results to better reflect the trading performance of the Group and its segments. Amortisation of intangible assets arising on consolidation is treated in line with acquisition related costs, the exclusion of which normalises the impact of deal dependent pricing and allows comparability of performance from period to period. Amortisation of purchased and developed software is retained in both the reported and adjusted results as these are considered to be core to supporting the operations of the business.

 

In H1 2021 the following disposal, acquisition and investment costs were considered to be significant items:

 

§ £21m in the amortisation of intangible assets recognised following acquisitions of which primarily £17m related to the amortisation of intangible assets in ICAP and £3m related to Liquidnet;

§ £8m in acquisition costs incurred, mainly relating to Liquidnet;

§ £3m of net losses on derivatives and foreign exchange, comprised of £8m of derivative losses offset by foreign currency exchange gains of £5m arising from economic hedging activities entered into to reduce the Group's exposure to a strengthening US dollar ahead of the Liquidnet acquisition;

§ £5m in employee redundancy costs incurred to date as part of the Liquidnet integration programme; and

§ £5m loss on disposal of Group's investment in an associate, reported separately on the Income Statement.

Goodwill impairment of £nil (H1 2020: £21m)

As with other related acquisition costs and adjustments, management consider goodwill impairment separately, due to significant variations year-on-year, to aid comparability of results. There was no goodwill impairment in H1 2021. In H1 2020, the carrying value of the Asia-Pacific CGU was written down by £21m.

Legal and regulatory matters of £11m (H1 2020: £2m)

Costs, and recoveries, related to certain legal and regulatory cases are treated as significant items due to their size and nature. Management consider these cases separately due to the judgements and estimation involved, the costs and recoveries of which could vary significantly year-on-year.

 

Total expense of £11m recognised for the half year ended 30 June 2021 for the following cases:

 

§ £4m costs relating to the recently announced fine from the AMF following their investigation. The Group is currently considering an appeal to the ruling;

§ £3m costs regarding the cum-ex legal case for an action by the Attorney General's office and the Cologne Public Prosecutor in Germany;

§ £2m in net legal costs relating to ongoing court cases in Australia;

§ £1m in expected legal and settlement costs related to a labour case in Brazil that existed prior to the ICAP acquisition; and

§ £1m in legal fees in the pursuit of claims for costs relating to the Group Income Protection liabilities.

 

Primary Operating Segment analysis

 

The adjusted operating profit and adjusted operating profit margin by region are shown below are compared with reported data for the prior period.

 

 

H1 2021 (£m)

EMEA

Americas

APAC

LQT 2

Corp/

Treasury

Total

Revenue

456

307

118

55

-

936

Total front office costs

(269)

(205)

(74)

(29)

-

(577)

Contribution

187

102

44

26

-

359

Contribution margin

41.0%

33.2%

37.3%

47.3%

-

38.4%

  Management and support costs

(94)

(58)

(30)

(19)

(7)

(208)

  Other operating income

2

1

1

-

-

4

Adjusted EBITDA

95

45

15

7

(7)

155

Adjusted EBITDA  margin

20.8%

14.7%

12.7%

12.7%

-

16.6%

 Depreciation and amortisation

(18)

(6)

(5)

(9)

-

(38)

Adjusted EBIT

77

39

10

(2)

(7)

117

Adjusted EBIT margin

16.9%

12.7%

8.5%

(3.6%)

-

12.5%

 

H1 2020 (£m)

EMEA

Americas

APAC

LQT 2

Corp/

Treasury

Total

Revenue:

488

377

125

-

-

990

Total front office costs:

(281)

(246)

(81)

-

(7)

(615)

Contribution

207

131

44

-

(7)

375

Contribution margin

42.4%

34.7%

35.2%

-

-

37.9%

  Management and support costs

(92)

(68)

(32)

-

(3)

(195)

  Other operating income

2

1

3

-

-

6

Adjusted EBITDA

117

64

15

-

(10)

186

Adjusted EBITDA margin

24.0%

17.0%

12.0%

-

-

18.8%

 - Depreciation and amortisation

(14)

(8)

(5)

-

-

(27)

Adjusted EBIT

103

56

10

-

(10)

159

Adjusted EBIT margin

21.1%

14.9%

7.9%

-

-

16.1%

               

 

1.  The Group's geographic segments were re-organised following the approval of the redomiciliation of the listed entity shareholders in February 2021. The amounts for H1 2020 have been restated to reflect the new segmentation. £10m in net management support costs, previously in the EMEA segment were moved to the new Corporate/Treasury segment resulting in an increase in Adjusted EBIT of EMEA to £103m from the previously published £93m in H1 2020. There were no other material changes to metrics published in the H1 2020 press release.

2.  LQT = Liquidnet. Due to the scale and strategic interest in the results of Liquidnet, management have decided to report it as its own primary operating segment.

 

EMEA

EMEA revenue for the region decreased by 7% in H1 2021 compared with the equivalent period in the prior year on a reported basis (5% lower on a constant currency basis). This reflected tough H1 2020 comparatives in Global Broking and Energy & Commodities, offset by good growth in Agency Execution (excluding Liquidnet) and Parameta Solutions.

 

Contribution margin decreased 1.4%pts to 41.0% mainly due to the revenue decline but also due to the re-signing of key staff in some core Global Broking areas. As such contribution declined to £187m, or 10% lower than in H1 2020.

 

EBIT margin reduced to 16.9%, or 4.2%pts lower, due to the lower revenue base. Management and support costs increased due to the LCM acquisition, but were partially offset by savings made as part of the £35m restructuring plan. EBIT declined to £77m, 25% lower than in the prior year.

Americas

Americas revenue decreased by 19% in H1 2021 compared with the same period in the prior year on a reported basis (12% lower on a constant currency basis). In Global Broking, all asset classes excluding FX & Money Markets and Emerging Markets reported lower revenues than the strong comparative period. Similarly, Energy & Commodities revenue in the prior period declined.

Agency Execution revenue decline was driven by lower revenues in the relative value business. Parameta Solutions continued its organic growth, adding new salespeople, products and clients.

The overall revenue reduction, combined with a number of new hires in equities, and our continued focus on broker retentions led to 22% lower contribution of £102m. As such, the contribution margin declined 1.5% pts to 33.2%.

The lower revenue base impacted the EBIT margin, which has declined 2.2% pts to 12.7%. This was despite a 15% management & support costs reduction to £58m.

Asia Pacific

Asia Pacific revenue decreased by 6% in H1 2021 compared with the same period in the prior year on a reported basis (2% lower on a constant currency basis), with strong Energy & Commodities offset by weaker Global Broking, as financial asset broking continued to be muted due to the resurgence of COVID-19.

H1 2021 contribution of £44m was in line with the prior year. The contribution margin for the region as a whole increased to 37.3%, 2.1% pts higher than equivalent period in the prior year. This was supported through reduction in broker compensation mainly through a carefully planned desk restructuring carried out last year, together with revenue improvements in the Energy and Commodities business.

 

The region's contribution was negatively impacted by Agency Execution in the short term as it continued to grow Coex FX Options and Rates businesses. Parameta Solutions, especially the global Matchbook Rates and NDF businesses centred in Singapore, continues to contribute to the region's overall performance.

 

EBIT was £10m for H1 2021, in line with the prior year, as lower revenues were offset by lower front-office and support costs. As a result, EBIT margin increased to 8.5%, or 0.6% pts higher year-on-year.

 

Liquidnet

 

Liquidnet revenues for the period in which it was consolidated (23 March to 30 June) were £55m as a consequence of lower equity market volumes in Q2 of 2021.  During Q2 US share trading volumes declined by 15% relative to the prior year. In Europe, the high conviction and high volatility first quarter produced robust block activity, where as in the second quarter, lower volatility and weak conviction conditions resulted in a lower share for blocks within overall trading activity.

 

Liquidnet reported 47.3% contribution margin and -3.6% EBIT margin.  The £2m EBIT loss reflects the impact of the revenue decline in the period since acquisition together with the scale of the acquired cost base.  We have identified c.£20m of annualised cost synergies in the business, of which we expect to achieve around a quarter in 2021 and the remainder by the end of 2023.  These savings around 10% of the annualised addressable costs of the business.  We are targeting a cost to achieve these savings of around 1x the synergy savings.

Divisional EBIT analysis

This section outlines the performance of TP ICAP Group by division in terms of revenues, contribution and operating profit (EBIT). The broking inter-segmental revenues and Parameta Solutions inter-segmental costs are eliminated upon the consolidation of the Group financial results. There is additional disclosure regarding divisional revenue performance in the previous sections

Broking contribution (excluding Parameta Solutions and the newly acquired Liquidnet business) declined 14% to £292m (H1 2020 £341m), reflecting lower revenues across our broking businesses.

Contribution represents the revenue of our businesses less the total front office costs. An improvement in the absolute level of contribution is an important metric in driving earnings growth for the Group. In H1 2021 the overall level of contribution was 4% lower at £359m year-on-year. The overall contribution margin increased to 38.4% as lower revenues were more than offset by lower front office costs. TP ICAP's adjusted EBIT of £117m was 26% lower than the prior year, primarily reflecting lower revenues due to underlying performance and FX headwinds.  Whilst the Group's underlying management and support costs were £18m lower year-on-year, this was offset by £48m of additional costs which comprise £32m of costs from the acquisitions of Liquidnet and LCM, £2m of strategic investment spend and a £14m movement in FX on our financial assets.  The EBIT margin declined 3.6% points to 12.5%.

 

Global Broking revenue was 11% lower on a reported basis (7% lower on a constant currency basis) compared to a strong prior year comparative. This performance was only partially offset by good growth in Equities, driven by the acquisition of LCM.

 

The adjusted operating profit (EBIT) decreased 29% to £89m. This was a result of reduced revenue offset partially by lower management and support costs that included investment in our Hub strategy. Operating profit (EBIT) margin decreased 3.9% pts to 15.5%.

 

Energy & Commodities   revenues decreased 14% on a reported basis (9% lower on a constant currency basis) compared with H1 2020 as market volatility declined versus extraordinary levels witnessed in the comparative period, especially between January and April. Revenues decreased in most products, including Oil and Power.

 

Contribution decreased 12% year on year to £64m, due to lower revenues. Our cost efficiency actions ensured that the contribution margin increased 0.6% pts.

 

The resulting adjusted EBIT decreased to £23m, or 28% lower versus H1 2020. The adjusted EBIT margin declined 2.4% pts to 12.3%.

 

Agency Execution revenue grew by 81% on a reported basis (84% higher on a constant currency basis) compared with H1 2021. This increase reflects revenue from the Liquidnet business acquired on 23 March 2021.   Excluding Liquidnet revenue, Agency Execution revenue was £48m, a 16% decrease on a reported basis (14% lower on a constant currency basis).  

 

Contribution increased to £36m, reflecting the impact of the Liquidnet acquisition, with contribution margin improving by 6.9% pts to 35.0%.

 

EBIT for the division was £nil (£8m lower year-on-year), with EBIT margin reducing from 14% to 0%.  This reflects the impact of lower revenue in the TP ICAP business, together with the £2m EBIT loss of Liquidnet in the Period

Parameta Solutions revenue of £82m was 1% lower than in H1 2020 on a reported basis (6% higher on a constant currency basis). During the Period, we launched our new brand Parameta Solutions, which includes Data & Analytics and the Post-Trade Solutions business (transferred from Global Broking's RMS to Parameta Solutions).

Data and Analytics (D&A) revenue continued to grow strongly (3% higher on a reported basis and 11% higher on a constant currency basis). Post-Trade Solutions revenue declined 23% lower on a reported basis (17% lower on a constant currency basis) on the back of lower secondary volumes resulting from the impact of Libor transition.

 

Contribution was stable at £41m. Data & Analytics and Post-Trade Solutions continues to build scale, launching new higher-value products, improving distribution channels and increasing the number of clients in the buy-side and the sell-side. Contribution margin increased to 50.0% or 0.6% pts higher year-on-year.

 

Parameta Solutions adjusted EBIT of £32m was 6% lower than H1 2020, with adjusted EBIT margin declining 2% pts to 39%.  This reflects additional investment in the Period in new product development and additional hires in the Global Sales team.

 

GB = Global Broking;  E&C = Energy & Commodities;  AE = Agency Execution, PS = Parameta Solutions, Corp/Elim = Corporate Centre, eliminations and other unallocated costs
 

 

H1 2021 (£m)

GB1,2

E&C2

AE3

PS1,2

Corp/

Elim

Total

Revenue:

 

 

 

 

 

 

  - External

565

186

103

82

-

936

  - Inter-division2

10

1

-

-

(11)

-

 

575

187

103

82

(11)

936

Total front office costs:

 

 

 

 

 

 

  - External

(357)

(123)

(67)

(30)

-

(577)

  - Inter-division2

-

-

-

(11)

11

-

 

(357)

(123)

(67)

(41)

11

(577)

Contribution

218

64

36

41

-

359

Contribution margin

37.9%

34.2%

35.0%

50.0%

-

38.4%

Net management and support costs:

 

 

 

 

 

 

  - Management and support costs

(115)

(36)

(25)

(8)

(24)

(208)

  - Other operating income

1

-

-

-

3

4

 

 

 

 

 

 

 

Adjusted EBITDA

104

28

11

33

(21)

155

Adjusted EBITDA margin

18.1%

15.0%

10.7%

40.2%

-

16.6%

 

 

 

 

 

 

 

 - Depreciation and amortisation

(15)

(5)

(11)

(1)

(6)

(38)

Adjusted EBIT

89

23

-

32

(27)

117

Adjusted EBIT margin

15.5%

12.3%

0.0%

39.0%

-

12.5%

Significant items

 

 

 

 

 

(60)

Reported EBIT

 

 

 

 

 

57

Reported EBIT margin

 

 

 

 

 

6.1%

Average broker headcount

1,987

655

118

n/a

n/a

2,760

Average sales headcount

-

-

63

n/a

n/a

63

Revenue per broker4

284

284

407

n/a

n/a

289

Contribution per broker4

110

98

85

n/a

n/a

1064

The adjusted operating profit and adjusted operating profit margin by region are shown below are compared with reported data for the prior period.

 

H1 2020 (£m)

GB1,2

E&C2

AE

PM1,2

Corp/
Elim

Total

Revenue:

 

 

 

 

 

 

  - External

634

216

57

83

-

990

  - Inter-division2

10

1

-

-

(11)

-

 

644

217

57

83

(11)

990

Total front office costs:

 

 

 

 

 

 

  - External

(392)

(144)

(41)

(31)

(7)

(615)

  - Inter-division2

-

-

-

(11)

11

-

 

(392)

(144)

(41)

(42)

4

(615)

Contribution

252

73

16

41

(7)

375

Contribution margin

39.1%

33.6%

28.1%

49.4%

 

37.9%

Net management and support costs:

 

 

 

 

 

 

  - Management and support costs

(115)

(37)

(8)

(6)

(29)

(195)

  - Other operating income

2

-

-

-

4

6

 

 

 

 

 

 

 

Adjusted EBITDA

139

36

8

35

(32)

186

Adjusted EBITDA margin

21.6%

16.6%

14.0%

42.2%

 

18.8%

 

 

 

 

 

 

 

 - Depreciation and amortisation

(14)

(4)

-

(1)

(8)

(27)

EBIT

125

32

8

34

(40)

159

Adjusted EBIT margin

19.4%

14.7%

14.0%

41.0%

 

16.1%

Significant items

 

 

 

 

 

(58)

Reported EBIT

 

 

 

 

 

101

Reported EBIT margin

 

 

 

 

 

10.2%

Average broker headcount

1,982

661

103

n/a

n/a

2,746

Average sales headcount

-

-

n/a

n/a

n/a

n/a

Revenue per broker

320

327

553

n/a

n/a

330

Contribution per broker

127

110

155

n/a

n/a

1244

 

1.  Following the formation of the Parameta Solutions business , the Post-trade Solutions business reported in the Rates asset class within Global Broking was transferred to Parameta Solutions. The comparative revenues of Rates within Global Broking and Parameta Solutions have been restated to reflect the restructuring. third party revenues in H1 2020 amounted to £13m. Additionally, inter-division revenue has increased by £1m reflect sale of clearing services to Post-trade Solutions, which eliminate on consolidation.  Adjusted EBIT (operating profit) within the Global Broking division has been reduced by £6m with the corresponding increase reflected in the results of Parameta Solutions.

2.  Inter-division charges have been made by Global Broking and Energy & Commodities to reflect the value of proprietary data provided to the Parameta Solutions division. The prior year period has been restated in line with the new-presentation format. The Global Broking inter-division revenues and Parameta Solutions inter-division costs are eliminated upon the consolidation of the Group's financial results.

3.  For H1 2021, £55m of revenue has been included within Agency Execution relating to the Liquidnet acquisition that completed on 23 March 2021.

4.  Revenue and contribution by broker is calculated as external revenues and contribution of GB, E&C and AE, excluding Liquidnet, divided by the average brokers for the Period. The Group revenue and contribution by broker excludes revenue and contribution from PS and Liquidnet, included within AE. Revenue and Contribution attributed to Liquidnet in 2021 was £55m and £26m, respectively.  

 

Group Net finance expense

 

The adjusted net finance expense of £29m is £6m higher than the £23m charged in H1 2020 reflecting the impact of additional debt drawn to partially finance the Liquidnet acquisition and the impact of foreign currency options purchased to hedge the acquisition proceeds.  This comprises £30m of interest expense, of which £18m relates to the Group's Sterling Notes, £2m of from interest and commitment fees on bank facilities, £1m of amortisation of debt issue costs and bank facilities arrangement fees and £2m of amortisation of the premium paid on foreign currency options purchased in 2020. £6m of interest was incurred on finance lease liabilities and there was £1m from other sources . The expense is offset by £1m of interest income. 

Group Tax

The effective rate of tax on adjusted profit before tax is 24.4% (H1 2020: 25.0%). The effective rate of tax on reported profit before tax is 107.0% (H1 2020: 42%).  The higher rate on reported profit before tax is due primarily to £16m increase in the deferred tax liability recognised in respect of intangible assets arising on consolidation following the announcement of a future increase in the UK corporation tax rate, which is included within significant items. 

Basic EPS

The average number of shares used for the basic EPS calculation of 737.7m reflects the 563.3m shares in issue at 31 December, increased by 225.4m shares issued under the rights issue, less 8.1m shares held by the TP ICAP plc Employee Benefit Trust at the end of the Period, less the time apportionment impact of the rights issue of 41.6m and the time apportioned movements in shares held by the EBT used to settle deferred share awards of 1.3m. The average number of shares in issue for June 2020 and December 2020 have been restated from the published numbers of 557.3m and 557.0m to 625.3m and 625.0m, respectively, reflecting the impact of the bonus element of the rights issue.  The TP ICAP plc Employee Benefit Trust has waived its rights to dividends.

 

The reported Basic EPS for the Period was 0.1p (H1 2020: 8.6p), and adjusted Basic EPS for the Period was 10.2p (H1 2020: 17.8p).  

Dividend

A 4.0p per share interim dividend ﴾H1 2020 reported: 5.6p, H1 2020 pro-forma for the bonus element of the February 2021 rights issue: 4.0p﴿ will be paid on 5 November 2021 to shareholders on the register at close of business on 1 October 2021. The ex-dividend date will be 30 September 2021.

The Group has previously announced its intention to pay 2x adjusted earnings on an annual basis.

The Company offers a Dividend Reinvestment Plan ('DRIP'), where dividends can be reinvested in further TP ICAP Group plc shares. The DRIP election cut-off date will be 15 October 2021.  

Cash Flow

 

£m

H1 2021

H1 2020

Adjusted EBITDA1

155

186

Share based compensation and pension admin fees

6

4

Change in initial contract prepayments

2

-

Working capital

(55)

(14)

Capital expenditure

(30)

(23)

Interest paid and bank fees

(28)

(24)

Income taxes paid

(25)

(37)

Free cash flow1

25

92

Free Cash Flow Margin2

2.7%

9.3 %

Cash flow impact of significant items

(31)

(9)

Net cash paid to acquire subsidiaries

(249)

-

Dividends from associates and joint ventures, net of investment

9

2

Deferred consideration paid on prior acquisitions

(7)

(4)

Other investing activities

6

4

Net proceeds from rights issue

309

-

Dividends paid to shareholders and non-controlling interest

(17)

 

(63)

Own shares acquired for employee trusts

-

(9)

Payment of lease liabilities (capital element)

(16)

(16)

Cash movements in net funds3

29

(3)

Net funds, excluding lease liabilities, at the beginning of the period1

58

135

Non-cash movements:

 

 

  Liquidnet Vendor Loan Notes

(36)

-

  Debt issue costs amortisation (see note 19)

-

(1)

  Foreign exchange movements

(6)

25

Net funds, excluding lease liabilities, at the end of the period 1

45

 

156

1 Adjusted EBITDA, Free cash flow and net funds are APMs and used to assess the performance of the Group and are not defined under IFRS. Further information on APMs including a reconciliation to an IFRS measure, are set out in the APM Glossary.

2 Free cash flow margin is calculated as Free Cash Flow divided by Revenue.

3 Cash movements in net funds is reconciled to net increase/decrease in cash and cash equivalents, an IFRS measure, is set out in the APM Glossary.

 

Free Cash flow decreased by £25 million during the Period reflecting the impact of:

 

a)    lower Adjusted EBITDA in line with lower revenues partly offset by lower cash costs;

b)  working capital outflow of £55m (H1 2020: outflow of £14m) that principally reflects the increase in trade  receivables (including clearing organisation balances) £43m (H1 2020: £18m); minimal (£1m) outflow from settlement balances (H1 2020: £6m outflow); outflows in respect of provisions of £4m (H1 2020: £3m) and other debtors and creditors (£9m) (H1 2020: £3m inflow); and an increase in unused annual leave accrual of £2m (H1 2020: £10m);

c)  Capital expenditure increased to £30m (H1 2020: £23m),  7m higher than in the prior period. This is the result of £4m of capital expenditure relating to Liquidnet, incremental spending on our new London Headquarters and ongoing IT investment projects; 

d) 4m increase in interest paid, which included £2m of additional finance lease interest (£1m for Liquidnet) and £1m of from increased borrowing facility drawings used as part of the funding of the Liquidnet acquisition; and

e)  £25m of adjusted tax payments. This is lower than H1 2020 tax payments of £37m due to lower profitability and because H1 2020 was a transitional period in which UK tax was paid in relation to both 2019 and 2020 profits.

 

As a result, the Group's free cash flow reduced to £25m from £92m, and the free cash flow margin decrease to 2.7% from 9.7%.

 

The cash flow on significant items of £31m primarily reflects Liquidnet acquisition costs (including hedging), costs-to-achieve the £35m cost savings plan, expenses incurred in the German and Australian legal cases and the costs of redomiciliation following shareholder approval in February 2021.

 

In March 2021, the Group paid £451m (including cash acquired of £202m) for Liquidnet (Note 24) which was partly funded by the net proceeds of £309m from the rights issue undertaken in February 2021.

 

Total dividends paid to shareholders (including £1m paid to non-controlling interests) were £17m, reflecting the 2020 final dividend of 2p on the enlarged share base following the rights issue.

 

Capital payments on finance lease liabilities were unchanged compared to the prior period.

 

Debt finance

The composition of the Group's outstanding debt is summarised below.

 

£m

At 30

June

2021

At 30

June

2020

At 31 December

2020

5.25% Sterling Notes January 2024

431

431

431

5.25% Sterling Notes May 2026

250

250

250

Loan from related party

65

-

28

Revolving credit facility drawn

42

40

-

Unamortised debt issue costs

(2)

(2)

(2)

3.2% Liquidnet Vendor Loan Notes

36

-

-

Overdrafts

32

-

7

Accrued interest

11

11

11

Debt (used as part of net funds/(debt))

865

730

725

Lease liabilities

286

216

212

Total Debt

1,151

946

937

 

The Group's core debt, pre-lease liability has increased to £865m. The increase was due to a drawdown on our revolving credit facility ('RCF') of $58m (£42m) and the credit facility with Totan of Yen10bn (£65m). The £270m RCF matures in December 2023 and the Yen10bn Totan facility matures in August 2023.

Vendor loan notes of $50m (£36m) were issued as part of the purchase consideration of Liquidnet.

Exchange rates  

The income statements and balance sheets of the Group's businesses whose functional currencies are not GBP are translated into Sterling at average and period end exchange rates respectively. The most significant exchange rates for the Group are the US Dollar and the Euro. The Group's current policy is not to enter into formal hedges of income statement or balance sheet translation exposures. Average and period end exchange rates used in the preparation of the financial statements are shown below.

 

 

Average

 

Period End

 

H1

2021

H1

2020

FY

2020

 

H1

2021

H1

2020

H2

2020

US Dollar

$1.39

$1.28

$1.29

 

$1.38

$1.24

$1.37

Euro

€1.15

€1.15

€1.13

 

€1.17

€1.10

€1.12

Pensions

The Group has one defined benefit pension scheme in the UK which is in the process of being wound up and individual policies issued to beneficiaries. During the wind-up period, the Group will continue to restrict the recognition of the net surplus applying an asset recognition ceiling. 

 

Following the full settlement of the Scheme's liabilities the Scheme will be wound-up and the sponsor expects to receive the remaining assets. Any repayment received will also be subject to applicable taxes at that time, currently 35%.

Regulatory capital

Following the Group's redomiciliation to Jersey on 26 February 2021, the Group now falls under the regulation of the Jersey Financial Services Commission.  At a Group level, the Group is no longer subject to the consolidated capital adequacy requirements under CRD IV and as a result the 'Financial Holding Company test' and CRD IV waiver requirements of the FCA are no longer applicable. The FCA has become the lead regulator of the Group's EMEA business, sub-consolidated under a UK holding Company, for which the consolidated capital adequacy requirements under CRD IV now apply. This sub-group has not applied for a waiver as the sub-group maintains an appropriate excess of financial resources.

 

Many of the Group's broking entities are regulated on a 'solo' basis, and are obliged to meet the regulatory capital requirements imposed by the local regulator of the jurisdiction in which they operate. The Group maintains an appropriate excess of financial resources in such entities.

Going concern

The Group has sufficient financial resources both in the regions and at the corporate centre to meet the Group's ongoing obligations. The Directors have assessed the outlook of the Group, including consideration of the enlarged Group following the acquisition of Liquidnet, for at least 12 months from date of approval of the financial statements by considering medium-term projections as well as stress tests and mitigation plans. These forecasts and stress tests take into account both the ongoing COVID-19 pandemic and Brexit.  Based on this assessment the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Interim Financial Statements continue to be prepared on the going concern basis.

 

----------------------------------------------------------------------------------------------------

 

Condensed Consolidated Income Statement

for the six months ended 30 June 2021

 

Notes

Six months ended 30 June 2021

£m

Six months ended 30 June 2020

£m

Year ended 31 December

2020

£m

Revenue

5

936

990

1,794

Employment, compensation and benefits

6

(600)

(639)

(1,153)

General and administrative expenses

6

(222)

(188)

(360)

Depreciation and impairment of PPE and ROUA

6

(26)

(18)

(37)

Amortisation and impairment of intangible assets

6

(35)

(29)

(59)

Impairment of other assets

6

-

(21)

(23)

Total operating costs

6

(883)

(895)

(1,632)

Other operating income

7

4

6

16

EBIT/operating profit

 

57

101

178

Finance income

8

1

2

3

Finance costs

9

(30)

(25)

(52)

Profit before tax

 

28

78

129

Taxation

 

(30)

(33)

(48)

(Loss)/profit after tax

 

(2)

45

81

Share of results of associates and joint ventures

 

9

10

16

Loss on sale of associate

 

(5)

-

-

Profit for the period

 

2

55

97

Attributable to:

 

 

 

 

Equity holders of the parent

 

1

54

96

Non-controlling interests

 

1

1

1

 

 

2

55

97

Earnings per share (restated)1

 

 

 

 

- Basic

10

0.1p

8.6p

15.4p

- Diluted

10

0.1p

8.5p

15.2p

1. Earnings per share for June 2020 and December 2020 have been restated reflecting the bonus element of the 2021 rights issue (Note 10).

 

----------------------------------------------------------------------------------------------------

 

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2021

 

 

Six months

ended

30 June

2021

(unaudited)

Six months

ended

30 June

2020

(unaudited)

Year

ended

31 December

2020

 

 

£m

£m

£m

Profit for the period

 

2

55

97

Items that will not be reclassified subsequently to profit or loss:

 

 

 

 

Remeasurement of defined benefit pension schemes

 

1

-

2

Equity investments at FVTOCI

- net change in fair value

 

-

(1)

-

Taxation relating to items not reclassified

 

-

-

-

 

 

1

(1)

2

Items that may be reclassified subsequently to profit or loss:

 

 

 

 

Fair value movements on net investment hedge

 

3

-

2

Effect of changes in exchange rates on 

translation of foreign operations

 

(21)

66

(30)

Taxation

 

-

1

(1)

 

 

(18)

67

(29)

Other comprehensive (loss)/income for the period

 

(17)

66

(27)

Total comprehensive (loss)/income for the period

 

(15)

121

70

 

 

 

 

 

Attributable to:

 

 

 

 

Equity holders of the parent

 

(15)

118

69

Non-controlling interests

 

-

3

1

 

 

(15)

121

70

 

 

 

 

 

 

----------------------------------------------------------------------------------------------------

 

Condensed Consolidated Balance Sheet

as at 30 June 2021

 

 

30 June

2021

(unaudited)

30 June

2020

(unaudited)

31 December

2020

 

Notes

£m

£m

£m

Non-current assets

 

 

 

 

Intangible assets arising on consolidation

12

1,766

1,505

1,463

Other intangible assets

 

91

62

58

Property, plant and equipment

 

135

82

101

Right-of-use assets

13

215

164

163

Investment in associates

 

51

60

61

Investment in joint ventures

 

29

27

29

Other investments

 

20

17

18

Deferred tax assets

16

7

3

4

Retirement benefit assets

 

1

-

-

Other long term receivables

14

29

25

24

 

 

2,344

1,945

1,921

Current assets

 

 

 

 

Trade and other receivables

14

76,288

37,672

70,027

Financial investments

19

117

158

127

Derivative financial instruments

 

-

-

3

Cash and cash equivalents

19

793

728

656

 

 

77,198

38,558

70,813

Total assets

 

79,542

40,503

72,734

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

(76,176)

(37,577)

(69,927)

Interest bearing loans and borrowings

15

( 150)

(51)

(46)

Lease liabilities

17

(26)

(22)

(26)

Current tax liabilities

 

(31)

(55)

(28)

Short term provisions

20

(12)

(20)

(17)

 

 

(76,395)

(37,725)

(70,044)

Net current assets

 

803

833

769

 

 

 

 

 

Non-current liabilities

 

 

 

 

Interest bearing loans and borrowings

15

( 715)

(679)

(679)

Lease liabilities

17

(260)

(194)

(186)

Deferred tax liabilities

16

(108)

(78)

(79)

Long term provisions

20

(26)

(26)

(23)

Other long term payables

 

(55)

(16)

(23)

Retirement benefit obligations

 

(2)

(2)

(2)

 

 

(1,166)

(995)

(992)

Total liabilities

 

(77,561)

(38,720)

(71,036)

Net assets

 

1,981

1,783

1,698

 

 

 

 

 

Equity

 

 

 

 

Share capital

23

197

141

141

Share premium

23

-

17

17

Merger reserve

23

-

1,384

1,384

Other reserves

23

(1,024)

(1,148)

(1,246)

Retained earnings

23

2,790

1,368

1,383

Equity attributable to equity holders of the parent

 

1,963

1,762

1,679

Non-controlling interests

23

18

21

19

Total equity

 

1,981

1,783

1,698

 

----------------------------------------------------------------------------------------------------

 

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2021

 

 

Equity attributable to equity holders of the parent (Note 23)

 

 

 

Share

capital

Share

premium

account

Merger

reserve

Reverse

acquisition

reserve

Re-

organisation reserve

Re-

valuation

reserve

Hedging

and

translation

Own

shares

Retained

earnings

Total

Non-

controlling

interests

Total

equity

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

30 June 2021 (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

1 January 2021

141

17

1,384

(1,182)

-

4

(41)

(27)

1,383

1,679

19

1,698

Profit for the period

-

-

-

-

-

-

-

-

1

1

1

2

Other comprehensive

income/(loss) for the period

-

-

-

-

-

-

(17)

-

1

( 16)

(1)

( 17)

Total comprehensive

Income/(loss) for the period

-

-

-

-

-

-

(17)

-

2

(15)

-

(15)

Rights issue

56

259

-

-

-

-

-

-

-

315

-

315

Rights issue costs

-

(6)

-

-

-

-

-

-

-

(6)

-

(6)

Scheme of Arrangement: Cancellation of existing shares and reserves

(197)

 

(270)

(1,384)

1,182

669

-

-

-

-

-

-

-

Scheme of Arrangement:

Issue of ordinary shares

197

1,418

-

-

(1,615)

-

-

-

-

-

-

-

Capital reduction

-

(1,418)

-

-

-

-

-

-

1,418

-

-

-

Dividends paid

-

-

-

-

-

-

-

-

( 16)

(16)

(1)

(17)

Share settlement of share-based payment awards

-

-

-

-

-

-

-

3

(3)

-

-

-

Credit arising on share-

based payment awards

-

-

-

-

-

-

-

-

6

6

-

6

Balance at

30 June 2021

197

-

-

-

(946)

4

(58)

(24)

2,790

1,963

18

1,981

 

 

 

 

 

 

Equity attributable to equity holders of the parent

 

 

 

Share

capital

Share

premium

account

Merger

reserve

Reverse

acquisition

reserve

Re-

organisation reserve

Re-

valuation

reserve

Hedging

and

translation

Own

shares

Retained

earnings

Total

Non-

controlling

interests

Total

equity

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

30 June 2020 (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

1 January 2020

141

17

1,384

(1,182)

-

5

(12)

(16)

1,375

1,712

18

1,730

Profit for the period

-

-

-

-

-

-

-

-

54

54

1

55

Other comprehensive

income/(loss) for the period

-

-

-

-

-

(1)

65

-

-

64

2

66

Total comprehensive

income for the period

-

-

-

-

-

(1)

65

-

54

118

3

121

Dividends paid

-

-

-

-

-

-

-

-

(63)

(63)

-

(63)

Gain on disposal of equity instruments at FVTOCI

-

-

-

-

-

(1)

-

-

1

-

-

-

Share settlement of share-

based payment awards

-

-

-

-

-

-

-

3

(3)

-

-

-

Own shares acquired for employee trusts

-

-

-

-

-

-

-

(9)

-

(9)

-

(9)

Credit arising on share-based payment awards

-

-

-

-

-

-

-

-

4

4

-

4

Balance at

30 June 2020

141

17

1,384

(1,182)

-

3

53

(22)

1,368

1,762

21

1,783

                           

 

 

 

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2021

 

 

 

Equity attributable to equity holders of the parent

 

 

 

Share

capital

Share

premium

account

Merger

reserve

Reverse

acquisition

reserve

Re-organisation

reserve

Re-

valuation

reserve

Hedging

and

translation

Own

shares

Retained

earnings

Total

Non-

controlling

interests

Total

equity

 

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

 

31 December 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

1 January 2020

141

17

1,384

(1,182)

-

5

(12)

(16)

1,375

1,712

18

1,730

 

Profit for the period

-

-

-

-

-

-

-

-

96

96

1

97

 

Other comprehensive

(loss)/income for the period

-

-

-

-

-

-

(29)

-

2

(27)

-

(27)

 

Total comprehensive

Income/(loss) for the period

-

-

-

-

-

-

(29)

-

98

69

1

70

 

Dividends paid

-

-

-

-

-

-

-

-

( 94)

(94)

(1)

(95)

 

Gain on disposal of equity instruments at FVTOCI

-

-

-

-

-

(1)

-

-

1

-

-

-

 

Share settlement of share-

based payment awards

-

-

-

-

-

-

-

3

(3)

-

-

-

 

Own shares acquired for employee trusts

-

-

-

-

-

-

-

(14)

-

(14)

-

(14)

 

Increase in non-controlling

interests

-

-

-

-

-

-

-

-

-

-

1

1

 

Credit arising on share-based payment awards

-

-

-

-

-

-

-

-

6

6

-

6

 

Balance at

31 December 2020

141

17

1,384

(1, 182)

-

4

(41)

(27)

1,383

1,679

19

1,698

 

                             

 

 

----------------------------------------------------------------------------------------------------

 

Condensed Consolidated Cash Flow Statement

for the six months ended 30 June 2021

 

 

Six months

ended

30 June

2021

(unaudited)

Six months

ended

30 June

2020

(unaudited)

 

Year

ended

31 December

2020

 

 

Notes

£m

£m

£m

Cash flows from operating activities

18

24

106

144

 

 

 

 

 

Investing activities

 

 

 

 

Sale/(purchase) of financial investments

 

9

(8)

18

Sale of equity investments at FVTOCI

 

-

2

2

Settlement/(purchase) of derivative financial instruments

 

5

-

(2)

Interest received

 

1

2

3

Dividends from associates and joint ventures

 

10

3

13

Expenditure on intangible fixed assets

 

(16)

(10)

(16)

Purchase of property, plant and equipment

 

(14)

(13)

(35)

Direct costs of acquiring ROUA

 

-

-

(2)

Deferred consideration paid

 

(7)

(4)

(22)

Investment in associates

 

(1)

(1)

(3)

Acquisition consideration paid

24

(451)

-

(18)

Cash acquired with acquisitions2

24

202

-

9

Net cash flows from investment activities

 

(262)

(29)

(53)

 

 

 

 

 

Financing activities

 

 

 

 

Dividends paid

12

(16)

(63)

(94)

Dividends paid to non-controlling interests

 

(1)

-

(1)

Proceeds of rights issue

 

315

-

-

Issue costs of rights issue

 

(6)

-

-

Own shares acquired for employee trusts

 

-

(9)

(14)

Net borrowing of bank loans1

 

40

40

-

Net borrowing from related party1

 

39

-

28

Payment of lease liabilities

 

(16)

(16)

(24)

Net cash flows from financing activities

 

355

(48)

(105)

 

 

 

 

 

Net increase/(decrease)

in cash and overdrafts

 

117

29

(14)

Cash and cash equivalents

at the beginning of the period

 

649

676

676

Effect of foreign exchange rate changes

 

(5)

23

(13)

Net cash and cash equivalents

at the end of the period

19

761

728

649

 

 

 

 

 

Cash and cash equivalents

 

793

733

656

Overdrafts

 

(32)

(5)

(7)

Net cash and cash equivalents

at the end of the period

 

761

728

649

1.  The Group utilises credit facilities throughout the year, entering into numerous short term bank and other loans where maturities are less than three months. The turnover is quick and the volume is large and resultant flows are presented net. Further details are set out in Note 15.

2.  Cash acquired with acquisitions in the Period represents cash and cash equivalents held by Liquidnet legal entities to meet regulatory and operational requirements, including £56m of restricted cash held to meet customer obligations.  Details of the Liquidnet acquisition are set out in Note 24.

 

 

----------------------------------------------------------------------------------------------------

 

Notes to the Condensed Consolidated Financial Statements

for the six months ended 30 June 2021

 

1.  General information

The condensed consolidated financial information for the six months ended 30 June 2021 has been prepared in accordance with the Disclosure and Transparency Rules ('DTR') of the Financial Conduct Authority and with IAS 34 'Interim Financial Reporting' as adopted and endorsed by the UK Endorsement Board and the European Union ('EU'), and IAS 34 as issued by the International Accounting Standards Board ('IASB'). This condensed financial information should be read in conjunction with the statutory Group Financial Statements of TP ICAP plc for the year ended 31 December 2020 (the '2020 Group Financial Statements') which were prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the EU.

The Group Financial Statements have been reported on by the Company's auditors, Deloitte LLP, and have been delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The condensed consolidated financial information for the six months ended 30 June 2021 has been prepared using accounting policies consistent with the 2020 Group Financial Statements.  The interim information, together with the comparative information contained in this report for the year ended 31 December 2020, does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006. The financial information is unaudited but has been reviewed by the Company's auditor, Deloitte LLP, and their report appears at the end of the Interim Management Report.

 

2.  Basis of preparation

(a) Basis of accounting

The Condensed Consolidated Financial Statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the going concern basis continues to be used in preparing these Condensed Consolidated Financial Statements.

The Condensed Consolidated Financial Statements are rounded to the nearest million pounds (expressed as £m), except where otherwise indicated.

 

(b) Basis of consolidation

The Group's Condensed Consolidated Financial Statements incorporate the financial information of the Company and entities controlled by the Company made up to each reporting period. Under IFRS 10 control is achieved where the Company exercises power over an entity, is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to use its power to affect the returns from the entity.

 

(c) Presentation of the Income Statement

Previously the Group presented a columnar format for its Consolidated Income Statement in order to aid the understanding of the 'underlying' performance measures used by the Group's Chief Operating Decision Maker ('CODM') and to provide a reconciliation to the Group's IFRS reported numbers. The information considered by the Group's CODM is now contained in Note 5 'Segmental Analysis', and in the Financial and Operating Review.

 

(d) Accounting policies

Except as described below, the accounting policies applied in these Condensed Consolidated Financial Statements are the same as those applied in the Group's Consolidated Financial Statements as at and for the year ended 31 December 2020.

The following new Standards and Interpretations have been endorsed by the UK Endorsement Board and are effective from 1 January 2021 but they do not have a material effect on the Group's financial statements:

Ø Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform - Phase 2;

Ø Amendments to IFRS 4: Insurance Contracts - deferral of IFRS 9; and

Ø Amendments to IFRS 16: Leases -  COVID-19-related Rent Concessions beyond 30 June 2021.

 

(e) Use of estimates and judgements

For the year ended 31 December 2020 the Group's critical accounting estimates and judgements, which are stated on pages 85, 86 and 140 of the Annual Report and Accounts 2020, were those that relate to provisions for liabilities, and the impairment of goodwill and intangible assets.  As a result of the acquisition of Liquidnet during the current period, the Directors have applied estimates and judgements when identifying and measuring the fair value of intangible and tangible assets, and liabilities that arise on consolidation.

Accounting for business combinations requires the excess of the purchase price of acquisitions to be allocated to the identifiable assets and liabilities of the acquired entity. Note 24 provides details of the Liquidnet acquisition, the accounting for which remains provisional due to the proximity of the acquisition to the reporting date.  The Group has made estimates to determine the provisional acquisition date fair values of the intangible assets that arise on consolidation and to estimate the useful lives of these assets.  The finalisation of the acquisition accounting for Liquidnet will be undertaken during the twelve month measurement period permitted by IFRSs and could result in material changes from the current estimates.  A 10% increase in the value of separately identifiable intangible assets would decrease goodwill by £12m.

(f) Corporate reorganisation

In February 2021 the Group adjusted its corporate structure.  TP ICAP Group plc was incorporated in Jersey on 23 December 2019 and became the new listed holding company of the Group on 26 February 2021 via a court-approved scheme of arrangement under Part 26 of the UK Companies Act 2006, with the former holding company, TP ICAP plc subsequently being renamed TP ICAP Limited.  Under the scheme of arrangement, shares in the former holding company of the Group were cancelled and the same number of new ordinary shares were issued to the new holding company in consideration for the allotment to shareholders of one ordinary share of 25 pence in the new holding company for each ordinary share of 25 pence they held in the former holding company.  On 26 February 2021, TP ICAP Group plc effected a reduction of its share capital by cancelling its share premium and recognising an equivalent increase in the profit and loss account in reserves. 

The share for share exchange between TP ICAP plc and TP ICAP Group plc was a common control transaction and has been accounted for using merger accounting principles.  Under these principles the results and cashflows of all the combining entities are brought into the consolidated financial statements from the beginning of the financial year in which the combination occurs and comparative figures also reflect the combination of the entities.  The Group's equity is adjusted to reflect that of the new holding company,  but in all other aspects the Group results and financial position are unaffected by the change and reflect the continuation of the Group.

 

3.  Related party transactions

The total amount included in trade receivables due from related parties as at 30 June 2021 was £5m (31 December 2020: £3m) and the amount included in trade payables due to related parties as at 30 June 2021 was £3m (31 December 2020: £3m).  Loans from a related party amounted to £65m as at 30 June 2021 (31 December 2020: £28m).

 

4.  Principal risks and uncertainties

Robust risk management is fundamental to the achievement of the Group's objectives.  The Group identifies the risks to which it is exposed as a result of its business objectives, strategy and operating model, and categorises those risks into five 'risk objectives': Financial position, Operational effectiveness and resilience, Regulatory standing, Reputation and Business strategy.  The risks identified within each of these categories, along with an explanation of how the Group seeks to manage or mitigate these risk exposures can be found on pages 45 to 49 of the latest Annual Report which is available at www.tpicap.com.  The Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report for the year ended 31 December 2020.  Risks and uncertainties, which could have a material impact on the Group's performance over the remaining six months of the financial year are discussed in the Interim Management Report.

 

5.  Segmental analysis

Products and services from which reportable segments derive their revenues

The Group has a matrix management structure. The Group's Chief Operating Decision Maker ('CODM') is the Executive Committee ('Exco') which operates as a general management committee under the direct authority of the Board. The Exco regularly reviews operating activity on a number of bases, including by business division and legal ownership which largely follows country of incorporation for TP ICAP legacy entities, plus the addition of Liquidnet ('Primary Operating Segments'). Following the redomiciliation of the Group's parent, the operational responsibility of entities were aligned with their legal ownership and as a result the comparatives for the Primary Operating Segments have been restated.  The Group currently considers that the Primary Operating Segments represent the most appropriate view for the purposes of resource allocation and assessment of the nature and financial effects of the business activities in which the Group engages. These are the Group's primary reportable segments under IFRS 8 'Operating Segments'.

The Group's performance is assessed by the CODM on the basis of adjusted performance that removes the effects of significant items from reported results. Significant items are items that management identify and consider separately in order to improve the understanding of the underlying trends and performance of the business, that would otherwise distort year-or-year comparison. These segmental results are therefore presented on an adjusted basis.

In addition, the Group has presented its adjusted results by business division: Global Broking, Energy & Commodities, Agency Execution and Parameta Solutions. Segmental income and expenses include transfers between segments and these transfers are conducted at arm's length. During the first half of 2021, the Group relaunched the Data & Analytics division as Parameta Solutions and transferred its Risk Management Services ('RMS') business, previously reflected within the Global Broking division, therein. Comparatives have been restated to reflect the new business segments.

 

Information regarding the Group's primary operating segments is reported below:

Analysis by primary operational segment

Six months ended 30 June 2021

EMEA

Americas

Asia Pacific

Liquidnet

Corporate/

Treasury

Total

 

£m

£m

£m

£m

£m

£m

Revenue

456

307

118

55

-

936

Total front-office costs

(269)

(205)

(74)

(29)

-

(577)

Contribution

187

102

44

26

-

359

Employment and general and administrative expenses

(94)

(58)

(30)

(19)

(7)

(208)

Other operating income

2

1

1

-

-

4

Adjusted EBITDA

95

45

15

7

(7)

155

Depreciation and impairment of PPE and ROUA

(9)

(5)

(5)

(5)

-

(24)

Amortisation and impairment of intangibles

(9)

(1)

-

(4)

-

(14)

Adjusted EBIT

77

39

10

(2)

(7)

117

 

 

 

 

 

 

 

 

Six months ended 30 June 2020

EMEA

Americas

Asia Pacific

Corporate/

Treasury

Total

 

£m

£m

£m

£m

£m

Revenue1

488

377

125

-

990

Total front-office costs

(281)

(246)

(81)

(7)

(615)

Contribution

207

131

44

(7)

375

Employment and general and administrative expenses

(92)

(68)

(32)

(3)

(195)

Other operating income

2

1

3

-

6

Adjusted EBITDA

117

64

15

(10)

186

Depreciation and impairment of PPE and ROUA

(7)

(6)

(5)

-

(18)

Amortisation and impairment of intangibles

(7)

(2)

-

-

(9)

Adjusted EBIT2

103

56

10

(10)

159

 

 

Year ended 31 December 2020

EMEA

Americas

Asia Pacific

Corporate/

Treasury

Total

 

£m

£m

£m

£m

£m

Revenue1

890

668

236

-

1,794

Total front-office costs

(515)

(445)

(154)

-

(1,114)

Contribution

375

223

82

-

680

Employment and general and administrative expenses

(166)

(115)

(67)

(18)

(366)

Other operating income

5

3

6

 

14

Adjusted EBITDA

214

111

21

(18)

328

Depreciation and impairment of PPE and ROUA

(15)

(12)

(9)

 

(36)

Amortisation and impairment of intangibles

(16)

(4)

-

 

(20)

Adjusted EBIT2

183

95

12

(18)

272

1.  The Group's geographic segments were re-organised following the approval of the redomiciliation of the listed entity by shareholders in February 2021, resulting in the creation of a Corporate / Treasury segment for our Jersey operations and financing activities. Revenues in the Americas increase by £1m offsetting the decrease in Asia in for the six months ended 30 June 2020. For the year ended 31 December 2020, revenues in EMEA increased by £2m offsetting the decrease in Americas.

2.  Adjusted EBIT/operating profit  increased by £10m in EMEA, offset by a corresponding decrease in Corporate/Treasury for the six months ended 30 June 2020 following the re-organisation. For the year ended 31 December 2020, Adjusted EBIT/operating profit increased by £23m in EMEA with a decrease of £1m in Americas, £4m in Asia and £18m in Corporate/Treasury segments.

 

 

Analysis by division

Six months ended 30 June 2021

GB1

E& C1

AE1

PM1

Corp.
Centre

Total

 

£m

£m

£m

£m

£m

£m

Revenue:

 

 

 

 

 

 

  - External

565

186

103

82

-

936

  - Inter-division

10

1

-

-

(11)

-

 

575

187

103

82

(11)

936

Total front office costs:

 

 

 

 

 

 

  - External

(357)

(123)

(67)

(30)

-

(577)

  - Inter-division

-

-

-

(11)

11

-

 

(357)

(123)

(67)

(41)

11

(577)

Contribution

218

64

36

41

-

359

Employment and general and administrative expenses

(115)

(36)

(25)

(8)

(24)

(208)

Other operating income

1

-

-

-

3

4

Adjusted EBITDA

104

28

11

33

(21)

155

Depreciation and impairment of PPE and ROUA

(8)

(3)

(6)

(1)

(6)

(24)

Amortisation and impairment of intangibles

(7)

(2)

(5)

-

-

(14)

Adjusted EBIT

89

23

-

32

(27)

117

 

Six months ended 30 June 2020

GB1,2,3

E&C1

AE1

PM1,2,3

Corp.
Centre

Total

 

£m

£m

£m

£m

£m

£m

Revenue:

 

 

 

 

 

 

  - External

634

216

57

83

-

990

  - Inter-division

10

1

-

-

(11)

-

 

644

217

57

83

(11)

990

Total front office costs:

 

 

 

 

 

 

  - External

(392)

(144)

(41)

(31)

(7)

(615)

  - Inter-division

-

-

-

(11)

11

-

 

(392)

(144)

(41)

(42)

4

(615)

Contribution

252

73

16

41

(7)

375

Total management and support costs

(115)

(37)

(8)

(6)

(29)

(195)

Other operating income

2

-

-

-

4

6

Adjusted EBITDA

139

36

8

35

(32)

186

Depreciation and impairment of PPE and ROUA

(8)

(2)

-

(1)

(7)

(18)

Amortisation and impairment of intangibles

(6)

(2)

-

-

(1)

(9)

Adjusted EBIT

125

32

8

34

(40)

159

 

Year ended 31 December 2020

GB1,2,3

E&C1

AE1

PM1,2,3

Corp.
Centre

Total

 

£m

£m

£m

£m

£m

£m

Revenue:

 

 

 

 

 

 

  - External

1,148

388

91

167

-

1,794

  - Inter-division

20

3

-

-

(23)

-

 

1,168

391

91

167

(23)

1,794

Total front office costs:

 

 

 

 

 

 

  - External

(726)

(261)

(69)

(58)

-

(1,114)

  - Inter-division

-

-

-

(23)

23

-

 

(726)

(261)

(69)

(81)

23

(1,114)

Contribution

442

130

22

86

-

680

Management and support costs-cash

(229)

(70)

(13)

(12)

(42)

(366)

Other operating income

3

1

-

-

10

14

Adjusted EBITDA

216

61

9

74

(32)

328

Depreciation and impairment of PPE and ROUA

(15)

(5)

(1)

(1)

(14)

(36)

Amortisation and impairment of intangibles

(13)

(3)

(1)

-

(3)

(20)

Adjusted EBIT

188

53

7

73

(49)

272

1.  GB is Global Broking, E&C is Energy & Commodities, AE is Agency Execution (and includes Liquidnet in H1 2021), PM is Parameta Solutions

2.  Following a restructuring of the asset classes within the Group, Post-Trade Solutions, previously reflected in the Rates asset class within Global Broking was transferred to Parameta Solutions, the Group's newly established division which also includes the Data & Analytics business, which was previously a separate business division and segment. The comparative revenues of Rates within Global Broking and Parameta Solutions have been restated to reflect the restructuring. Post-Trade Solution third party revenues for the six months ended 30 June  2020 amounted to £13m and £22m for the year ended 31 December 2020. Additionally, inter-division revenues increased by £1m for the six months ended 30 June 2020 and £2m for the year ended 31 December 2020 reflecting sale of services to RMS, which eliminate on consolidation.

3.  Following the transfer of Post-Trade Solutions from Global Broking to Parameta Solutions, Adjusted EBIT for the Global Broking division reduced by £6m for the six months ended 30 June 2020 and £9m for the year ended 31 December 2020 with a corresponding increase for Parameta Solutions.

Corporate Centre represents the cost of group and central functions that are not allocated to the Groups divisions.

 

Analysis of significant items

 

Six months ended 30 June 2021

Restructuring

and other related costs

Disposals, acquisitions and investment in new businesses

Goodwill impairment

Legal and regulatory matters

Total

 

£m

£m

£m

£m

£m

Employment, compensation and benefits costs

4

5

-

-

9

Premises and related costs

2

-

-

-

2

Deferred consideration

-

-

-

-

-

Charge relating to significant legal and regulatory settlements

-

-

-

5

5

Pension scheme past service and settlement costs

1

-

-

-

1

Acquisition costs

-

8

-

-

8

Net losses on derivative instruments

-

8

-

-

8

Net foreign exchange gains

-

(5)

-

-

(5)

Other general and administration costs

3

-

-

6

9

Total included within general and administration costs

6

11

-

11

29

Depreciation and impairment of PPE and ROUA

2

-

-

-

2

Amortisation and impairment of intangible assets

-

21

-

-

21

Total included within operating costs

12

37

-

11

60

Impairment of investment in associates - reflected together with Share of results of associates and joint ventures

-

5

-

-

5

Total significant items

12

42

-

11

65

 

 

Six months ended 30 June 2020

Restructuring

and other related costs

Disposals, acquisitions and investment in new businesses

Goodwill impairment

Legal and regulatory matters

Total

 

£m

£m

£m

£m

£m

Employment, compensation and benefits costs

2

-

-

-

2

Premises and related costs

2

-

-

-

2

Deferred consideration

-

1

-

-

1

Charge relating to significant legal and regulatory settlements

-

-

-

2

2

Pension scheme past service and settlement costs

-

-

-

-

-

Acquisition costs

-

1

-

-

1

Other general and administration costs

9

-

-

-

9

Total included within general and administration costs

11

2

-

2

15

Depreciation and impairment of PPE and ROUA

-

-

-

-

-

Amortisation and impairment of intangible assets

-

20

-

-

20

Impairment of other assets

-

-

21

-

21

Total included within operating costs

13

22

21

2

58

Included in other operating income

-

-

-

-

-

Total significant items

13

22

21

2

58

 

 

Year ended 31 December 2020

Restructuring and other related costs

Disposals, acquisitions and investment in new businesses

Goodwill impairment

Legal and regulatory matters

Total

 

£m

£m

£m

£m

£m

Employment, compensation and benefits costs

6

-

-

-

6

Premises and related costs

2

-

-

-

2

Deferred consideration

-

2

-

-

2

Credit relating to significant legal and regulatory settlements

-

-

-

(3)

(3)

Pension scheme past service and settlement costs

1

-

-

-

1

Acquisition costs

-

11

-

-

11

Other general and administration costs

9

-

-

5

14

Total included within general and administration costs

12

13

-

2

27

Depreciation and impairment of PPE and ROUA

1

-

-

-

1

Amortisation and impairment of intangible assets

-

39

-

-

39

Impairment of other assets

1

1

21

-

23

Total included within operating costs

20

53

21

2

96

Included in other operating income

-

-

-

(2)

(2)

 

20

53

21

-

94

 

Adjusted profit reconciliation

 

Six months

ended

30 June

2021

Six months

ended

30 June

2020

Year

ended

31 December

2020

 

£m

£m

£m

Adjusted EBIT/operating profit

117

159

272

Significant items

(60)

(58)

(94)

EBIT/operating profit

57

101

178

Net finance costs

(29)

(23)

(49)

Profit before tax

28

78

129

Taxation on significant items

(9)

1

7

Taxation on adjusted profit before tax

(21)

(34)

(55)

(Loss)/profit after tax

(2)

45

81

Share of profit from associates and joint ventures

9

10

16

Loss on disposal of associate

(5)

-

-

Profit for the period

2

55

97

 

Other segmental information

 

30 June

2021

30 June

2020

(restated)

31 December

2020

(restated)

Segment assets

£m

£m

£m

EMEA - UK

16,384

24,759

5,381

EMEA - Other

1,123

399

252

Americas

61,000

15,007

66,775

Asia Pacific

300

327

302

Liquidnet

733

-

-

Corporate

2

11

24

 

79,542

40,503

72,734

 

Segment liabilities

 

 

 

EMEA - UK

15,393

23,699

4,420

EMEA - Other

1,083

385

199

Americas

60,532

14,448

66,278

Asia Pacific

134

175

127

Liquidnet

389

-

-

Corporate

30

13

12

 

77,561

38,720

71,036

Segmental assets and liabilities exclude all inter-segment balances.

 

 

Six months ended 30 June 2021

EMEA

Americas

Asia

Liquidnet

Total

 

£m

£m

£m

£m

£m

Revenue by type

 

 

 

 

 

Name Passing brokerage

340

174

109

-

623

Executing Broker brokerage

13

37

1

-

51

Matched Principal brokerage

53

80

2

-

135

Introducing Broker brokerage1 brokerage

-

-

-

55

55

Data & Analytics price information fees

50

16

6

-

72

 

456

307

118

55

936

 

Six months ended 30 June 2020

EMEA

Americas

Asia

Liquidnet

Total

 

£m

£m

£m

£m

£m

Revenue by type

 

 

 

 

 

Name Passing brokerage

383

204

116

-

703

Executing Broker brokerage

9

37

2

-

48

Matched Principal brokerage

47

120

2

-

169

Data & Analytics price information fees

49

16

5

-

70

 

488

377

125

-

990

 

 

Year ended 31 December 2020

EMEA

Americas

Asia

Liquidnet

Total

 

£m

£m

£m

£m

£m

Revenue by type

 

 

 

 

 

Name Passing brokerage

682

392

218

-

1,292

Executing Broker brokerage

17

76

3

-

96

Matched Principal brokerage

90

168

3

-

261

Data & Analytics price information fees

101

32

12

-

145

 

890

668

236

-

1,794

1.   The Group arranges matched transactions where the counterparties settle through a third party clearing entity. Revenue for the service of matching buyers and sellers of financial instruments is stated net of sales taxes, rebates and discounts and is recognised in full on trade date (point in time recognition).

 

 

6.  Operating costs

Operating costs comprise:

 

Six months

ended

30 June

2021

Six months

ended

30 June

2020

Year

ended

31 December

2020

 

£m

£m

£m

Broker compensation costs

451

498

896

Other staff costs

143

137

250

Share-based payment charge

6

4

6

Charge relating to employee long-term benefits

-

-

1

Employee Compensation and benefits

600

639

1,153

Technology and related costs

91

87

167

Premises and related costs

17

14

29

Adjustments to deferred consideration

-

1

2

Charge/(credit) relating to significant legal and regulatory settlements

5

2

(3)

Pension scheme past service and settlement costs

1

-

1

Acquisition costs

8

1

11

Expected credit loss adjustment

-

4

(6)

Net foreign exchange gains

(3)

(10)

(1)

Net losses on derivative instruments

10

-

-

Other administrative costs

93

89

160

General and administrative expenses

222

188

360

Depreciation of property, plant and equipment

10

6

13

Depreciation of right-of-use assets

16

12

23

Impairment of right of use asset

-

-

1

Depreciation and impairment of PPE and ROUA

26

18

37

Amortisation of other intangible assets

14

9

20

Amortisation of intangible assets arising on consolidation

21

20

39

Amortisation and impairment of intangible assets

35

29

59

Goodwill impairment

-

21

21

Impairment of finance lease receivables

-

-

1

Impairment of associates

-

-

1

Impairment of other assets

-

21

23

 

883

895

1,632

 

 

7.  Other operating income

Other operating income comprises:

 

Six months

ended

30 June

2021

Six months

ended

30 June

2020

Year

ended

31 December

2020

 

£m

£m

£m

Business relocation grants

1

1

3

Employee related insurance receipts

1

1

2

Management fees from associates

1

1

3

Legal settlement receipts

-

-

2

Other receipts

1

6

 

4

6

16

 

8.  Finance income

 

Six months

ended

30 June

2021

Six months

ended

30 June

2020

Year

ended

31 December

2020

 

£m

£m

£m

Interest receivable and similar income

1

2

2

Interest receivable on finance lease receivables

-

-

1

 

1

2

3

 

9.  Finance costs

 

Six months

ended

30 June

2021

Six months

ended

30 June

2020

Year

ended

31 December

2020

 

£m

£m

£m

Interest payable on bank and other loan facilities

1

1

2

Interest payable on bank and other loans

1

-

1

Interest payable on Sterling Notes January 2024

11

11

23

Interest payable on Sterling Notes May 2026

7

7

13

Other interest payable

1

-

1

Amortisation of debt issue and bank facility costs

1

1

1

Borrowing costs

22

20

41

Interest payable on lease liabilities

6

5

11

Amortisation of options premium

2

-

-

 

30

25

52

 

 

 

 

 

10.  Earnings per share

 

Six months

ended

30 June

2021

Six months

ended

30 June

2020

(restated)

Year

ended

31 December

2020

(restated)

Basic

0.1p

8.6p

15.4p

Diluted

0.1p

8.5p

15.2p

 

The calculation of basic and diluted earnings per share is based on the following number of shares:

 

Six months

ended

30 June

2021

Six months

ended

30 June

2020

Year

ended

31 December

2020

 

No. (m)

No. (m)

(restated)

No. (m)

(restated)

Basic weighted average shares - as previously reported

 

557.3

557.0

Impact of the bonus element of the 2021 Rights Issue

 

68.0

68.0

Basic weighted average shares

737.7

625.3

625.0

Contingently issuable shares - as previously reported

 

5.7

6.9

Impact of the bonus element of the 2021 Rights Issue

 

0.7

0.8

Contingently issuable shares

7.9

6.4

7.7

 

 

 

 

Diluted weighted average shares

745.6

631.7

632.7

 

The earnings used in the calculation of basic and diluted earnings per share are set out below:

 

Six months

ended

30 June

2021

Six months

ended

30 June

2020

Year

ended

31 December

2020

 

£m

£m

£m

Earnings for the period

2

55

97

Non-controlling interests

(1)

(1)

(1)

Earnings attributable to equity holders of the parent

1

54

96

 

 

11.  Dividends

 

Six months

ended

30 June

2021

Six months

ended

30 June

2020

Year

ended

31 December

2020

 

£m

£m

£m

Amounts recognised as distributions to

equity holders in the period:

 

 

 

Final dividend for the year ended 31 December 2020

of 2p per share

16

-

-

Interim dividend for the year ended 31 December 2020

of 5.6p per share

-

-

31

Final dividend for the year ended 31 December 2020

of 11.25p per share

-

63

63

 

16

63

94

 

An interim dividend of 4 pence per share will be paid on 5 November 2021 to all shareholders on the Register of Members on 1 October 2021.

As at 30 June 2021 the TP ICAP plc EBT held 8,094,031 TP ICAP Group plc 25p ordinary shares (31 December 2020: 8,630,751 and 30 June 2020: 6,619,203 TP ICAP plc 25p ordinary shares) and has waived its rights to dividends.

 

12.  Intangible assets arising on consolidation

 

Goodwill

Other

Total

 

£m

£m

£m

As at 1 January 2021

989

 474

1,463

Recognised on acquisition - provisional (Note 24)

175

159

334

Amortisation of acquisition related intangibles

-

(21)

(21)

Effect of movements in exchange rates

(5)

(5)

(10)

As at 30 June 2021

1,159

607

1,766

 

Other intangible assets at 30 June 2021 represent customer relationships of £604m (31 December 2020: £469m), business brands and trademarks of £3m (31 December 2020: £5m) that arise through business combinations.  Customer relationships are being amortised between 10 and 20 years.  The amounts included within goodwill and other assets arising on consolidation as a result of the acquisition of Liquidnet are provisional as at 30 June 2021 (Note 24).

Goodwill arising through business combinations is allocated to groups of individual cash-generating units ('CGUs'), reflecting the lowest level at which the Group monitors and tests goodwill for impairment purposes. The CGU groupings are as follows:

 

30 June

2021

30 June

2020

31 December 2020

 

£m

£m

£m

CGU

 

 

 

EMEA

686

662

686

Americas

249

280

253

Asia Pacific

50

50

50

Liquidnet - provisional allocation

174

-

-

Goodwill allocated to CGUs

1,159

992

989

 

The Group's annual impairment testing of its CGUs is undertaken each September.  Between annual tests the Group reviews each CGU for impairment triggers that could adversely impact the valuation of the CGU and, if necessary, undertakes additional impairment testing.  Following June 2021's impairment review, the Asia Pacific CGU was subject to impairment testing, triggered as a result of changes in revenues and expected CGU cash flows. 

Determining whether goodwill is impaired requires an estimation of the recoverable amount of each CGU.  The recoverable amount is the higher of its value in use ('VIU') or its fair value less cost of disposal ('FVLCD').  VIU is a pre-tax valuation, using pre-tax cash flows and pre-tax discount rates which is compared with the pre-tax carrying value of the CGU, whereas FVLCD is a post-tax valuation, using post-tax cash flows, post-tax discount rates and other post-tax observable valuation inputs, which is compared with a post-tax carrying value of the CGU.  The CGU's recoverable amount is compared with its carrying value to determine if an impairment is required.

For the 30 June 2021 impairment test the recoverable amount of the Asia Pacific CGU was based on its VIU.  The key assumptions for the VIU calculations are those regarding expected cash flows arising in future periods, CGU growth rates and the discount rates.  Future projections were based on the most recent financial projections considered by the Board which were used to project pre-tax cash flows for the next five years.  After this period a steady state cash flow is used to derive a terminal value for the CGU.  The growth rate on underlying revenues for Asia Pacific was 1.1% (September 2020: 1.5%) over the five year projected period, with pre-tax discount rates of 11.6% (September 2020: 11.8%).  The June 2021 testing did not result in an impairment of the Asia Pacific CGU but the CGU remains sensitive to reasonably possible changes in the VIU assumptions.  A reduction in the growth rate over the five year projected period to nil% would reduce the VIU by £55m, with the VIU then equalling its carrying value, as would a permanent 6% reduction in the first year of forecast revenues.  An increase in the discount rate by 2% would reduce the VIU by £24m.  The impact on future cash flows resulting from falling growth rates does not reflect any management actions that would be taken under such circumstances.

 

13.  Right-of-use assets

 

Land and buildings

Furniture, fixtures, equipment and motor vehicles

Total

 

£m

£m

£m

As at 1 January 2021

162

1

163

Additions

1

-

1

Acquired as part of acquisitions

70

-

70

Depreciation

(16)

-

(16)

Depreciation capitalised as leasehold improvements

(1)

-

(1)

Effect of movements in exchange rates

(1)

(1)

-

As at 30 June 2021

215

-

215

 

The Group leases several buildings which have an average lease terms of 11 years (2020: 11 years).

Additions to right-of-use assets were £71m, £70m (including capitalised dilapidation provision of £2m) of which related to the acquisition of Liquidnet.  The Group measures right-of-use assets acquired as part of an acquisitions at their fair values, reflecting market rates as at the time of acquisition (Note 24). In respect of 135 Bishopsgate, depreciation of £1m and lease interest expense of £1m have been capitalised as leasehold development costs whilst the project was in its construction phase in 2021. During the period to 30 June 2021 £2m has been capitalised, of which £1m relates to depreciation and £1m relates to interest in lease liabilities

 

14.  Trade and other receivables

 

 

30 June

2021

31 December

2020

 

 

£m

£m

Non-current receivables

 

 

 

Finance lease receivables

 

4

5

Other receivables

 

25

19

 

 

29

24

Current receivables

 

 

 

Settlement balances

 

74,473

68,487

Deposits paid for securities borrowed

 

1,274

1,115

Trade receivables

 

395

301

Finance lease receivables

 

1

1

Other debtors

 

22

15

Prepayments

 

100

90

Accrued income

 

13

11

Corporation tax

 

5

2

Owed by associates and joint ventures

 

5

5

 

 

76,288

70,027

 

 

Settlement balances arise on Matched Principal brokerage whereby securities are bought from one counterparty and simultaneously sold to another counterparty. Settlement of such transactions is primarily on a delivery vs payment basis ('DVP') and typically take place within a few business days of the transaction date according to the relevant market rules and conventions. The amounts due from and payable to counterparties in respect of as yet unsettled Matched Principal transactions are shown gross, except where a netting agreement, which is legally enforceable at all times, exists and the asset and liability are either settled net or simultaneously. The above analysis reflects only the receivable side of such transactions. Corresponding payable amounts are shown in 'Trade and other payables'. The Group measures loss allowances for settlement balances under the general approach reflecting the probability of default based on the credit rating of the counterparty together with an assessment of the loss, after the sale of underlying instruments, that could arise as a result of default. As at 30 June 2021, the provision for expected credit losses amounted to less than £1m (2020: less than £1m).

Deposits paid for securities borrowed arise on collateralised stock lending transactions. Such trades are complete only when both the collateral and stock for each side of the transaction are returned. The above analysis reflects the receivable side of such transactions. Corresponding deposits received for securities loaned are shown in 'Trade and other payables'. The Group measures loss allowances for these balances under the general approach reflecting the probability of default based on the credit rating of the counterparty together with an assessment of the loss, after the sale of collateral, that could arise as a result of default. As at 30 June 2021, the provision for expected credit losses amounted to less than £1m (2020: less than £1m).

The Group measures the loss allowance for trade receivables at an amount equal to the lifetime expected credit loss. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor's current financial position, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date.

The following table details the risk profile of trade receivables based on the Group's provision matrix by region. As the Group's historical credit loss experience does not show significantly different loss patterns for different regional customer segments, the provision for loss allowance based on past due status is not further distinguished between the Group's different customer base.

Trade receivables

Total

Not past due

Less than 30 days past due

31-60 days past due

61-90 days past due

Greater than 91 days past due

 

£m

£m

£m

£m

£m

£m

30 June 2021

 

 

 

 

 

 

EMEA

196

54

35

22

19

66

Americas

112

56

18

10

8

20

Asia Pacific

42

24

6

4

2

6

Liquidnet

50

50

-

-

-

-

Group balances outstanding

400

184

59

36

29

92

Lifetime ECL

(5)

 

 

 

 

 

 

395

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2020

 

 

 

 

 

 

EMEA

170

87

20

13

7

43

Americas

99

45

18

9

6

21

Asia Pacific

37

21

4

3

2

7

Group balances outstanding

306

153

42

25

15

71

Lifetime ECL

(5)